real estate australia - melbourne property

Real Estate Australia – Financing From Singapore Banks

Many foreigners who bought into off-the-plan Australian real estate for investment, especially during the mad rush before the stamp duty surcharge hike for foreign buyers of residential properties (for example from 3% to 7% in the state of Victoria with effect from 1 July 2016), were caught in a limbo now that their settlement date draws near.  This wave of completions for newly-launched residential real estate projects in Melbourne back in 1st half of 2016 (new 7% stamp duty surcharge for foreign buyers were announced in April 2016 by Victorian State government) will be mostly in the period of 2018/2019.

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The limbo was caused by the clampdowns on lending to foreigners since 2017.  Those who opted not to take up financing immediately at point of purchase and are now looking to secure mortgage loans from Australian banks get a shock when they find themselves unable to secure the financing required.  As such, those without sufficient cash on hand to settle or complete their purchases may end up giving up their units and back to the developer.  We have heard of such cases.

Not all is lost as unknown to many, there are banks in Singapore that could extend financing for Australian investment properties, especially for those in prime areas (usually within 20km from CBD) of the four major Australian cities of Sydney, Melbourne, Perth, and to a lesser extent Brisbane.

 

Who Are Eligible For Such Australian Property Loans From Singapore Banks?

Quite a large number of foreigners are eligible even for PRC buyers of Australia real estate for investment albeit qualification may be more stringent for this group unless one works for a MNC operating in China, with verifiable income documents.  Still, the overarching criteria here is – as long one is not residing within Australia, ie. working or paying tax in Australia, Singapore banks would be able to lend to any nationality even Australian nationals working here in Singapore.  The qualification will be easier if the real estate investor is based in a country where there are branch operations of the Singapore bank, but this may not be necessary.

Though many foreigners are eligible to apply to Singapore banks, take note not all locations and projects can be financed and our consultants do need to check with the banks from time to time who may exclude certain projects based on location, property class type, and concentration risk for the lender (so the earlier you apply, the better).

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How Much Financing Can I Get And Is The Process Onerous?

In most cases, expect the loan-to-value (LVR) for foreigners borrowing from Singapore banks for their Australian investment real estate to be 60%.  Those working in Singapore could usually get slightly higher LVR up to 70% of the valuation.

The application process is a lot easier than what most thought.  It is certainly a lot less cumbersome than trying to borrow from an Australian bank downunder, especially for foreigners that is now made quite  impossible unless one has prior wealth relationships with the lender.  For employment income, Singapore banks would mostly require just 6 months of payslips with 6 months of bank statements showing matching salary-crediting.  Tax documents from recognized tax regimes like Hong Kong etc would be a bonus.

Most importantly, the entire approval process would usually take less than 2 weeks compared with sometimes over a month or two for lenders from other countries, as Singapore banks are generally familiar with taking in Australian real estate collaterals.

 

Any Other Criteria That I Need To Know?

Some banks (not all) would require AUM or asset under management, which typically means depositing S$200,000 into a Wealth or Premier banking account before the mortgage can be approved or disbursed.  Speak to our consultants who could better aid you in understanding this requirement.  In some instance, this could be waived.

Though this might deter some investors who value liquidity, it could actually play to their advantage especially for those who like to take a position in the currency pair of AUD/SGD where some Singapore banks would even allow switching (for a small admin fee) from one currency to another when investors choose to take a bet on currency movements.  And when the currency position is in Sing dollar for example, the AUM funds of S$200,000 would come in nicely as a buffer should there be a need to “top up” or pay down on the loan if the bet goes wrong.  This is so as the AUM funds has already been converted at an earlier exchange rate before the bet.

Most importantly, as history has shown, the Sing dollar remains a safe haven currency in this part of the world as Singapore continues to gain status as the financial hub of South Asia, especially for the growing segment of crazy rich Asians.  For global real estate investors, it certainly makes financial sense to diversify and park some of their funds here in Sing dollar base.

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RBA (Reserve Bank Of Australia) has held its cash rate or the benchmark overnight interest unchanged at 1.50% for almost 2 whole years since mid of 2016.  The Board has voted to maintain this same rate in its most recent meeting on 2 Oct with softening home prices in both Sydney and Melbourne and the tightening lending conditions weighing in the minds of monetary policy makers.

 

Singapore banks providing financing for real estate investment in Australia usually peg their loans in AUD to their internal cost of funds (COF) for 3-month AUD, which tracks the cash rate in Australia closely.  In fact, if one opts to take the loan in SGD instead, the prevailing interest rates would actually be a lot lower than those in Australia which hovers around 5-6%.  The SGD financing interest from Singare banks is at around 4% and we could even get you rates below 4% for the first two years of the loan.

 

With such low interest rates supporting the real estate market in Australia, and developers downunder having to price-right in a softening market, this could be the best time to pick out the winners for Australia real estate.  And there is no better way to leverage than from Singapore banks.  Contact our team of professional mortgage brokers based here in Singapore and let us make this process a walk in the park for you.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.  Read our clients’ testimonials.

 

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australia property loan

Australia Property Loan – Aussie Vs Singapore Banks

Unknown to many, Singapore banks have long been active in providing Australia property loans for purchases in the 3 main cities of Sydney, Melbourne, Perth (plus Brisbane for some lenders) to both Singaporeans as well as foreigners onshore and offshore to Singapore, as long as one is not a resident of Australia.  This applies even to Aussie expats working outside of Australia.

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With the clampdown on mortgages issued to foreigners in Australia since 2016, more Aussie property investors are finding reprieve from lenders in Singapore.  To give a quick understanding, we give a summary on the key differences between borrowing from Aussie banks (for those still eligible) and from Singapore banks below.

 

Information As At August 2018

Loan FeaturesAustralia Property Loan
From Singapore Banks
 
Australia Property Loan
From Australian Banks
Eligibility

 

Non-tax resident of Australia;
Singapore Citizen/PR;
Onshore/offshore foreigners to Singapore
Australian tax residents;
Australia Citizen/PR;
Mainly onshore foreigners to Australia
Purpose

 

Must be for investment only;
(both purchase or remortgage from Aussie/Singapore banks)
Both investment and own-use
(both purchase & remortgage)
Base Currency

 

Choice of AUD or SGDAUD only
Currency Switch

 

YesNo
Interest Rate

 

Variable rate only
(P+I, no interest-servicing loan option)
Fixed and variable
(with interest-only option)
Mortgage Peg

 

3-month SIBOR (In SGD);
Bank’s AUD COF/3M-BBSW* (In AUD)
Variable rate based on internal BOARD
(usually reference on cash rate from RBA)
Loan-Value-Ratio (LVR)Mostly 60% with max up to 70%
(75% for Singaporeans)
Mostly 80%
(max up to 90% for Aussies)
Minimum Loan

 

A$200,000 to A$300,000A$100,000
Max Loan Tenure

 

30 years or up to age 7530 years or up to age 99
Location

 

Sydney, Melbourne, Perth, Brisbane;
Usually within 25km from City Center;
Approved project list
All cities and projects
Type Of Property

 

Must be completed in 1 single disbursement, usually apartments/condoAll types completed or under construction
Built-in Area

 

50sqm
(internal only exclude balcony/PES)
40sqm
(internal only exclude balcony/PES)

 

As our chart above illustrates quite clearly the differences between taking out a mortgage from an Aussie bank versus that from a Singapore lender, we need only to highlight a few other considerations when choosing between the two:

 

1. Amount of expenses and debt information to be furnished

In an effort to clamp down on excessive lending in recent years, Aussie banks have stepped up their checks on applicants’ expenses and debt level declared by seeking a whole bunch of onerous documents from credit card statements to household bills.  Australian authorties have also announced in Nov 2017 plans to introduce a mandatory centralized credit reporting regime which forces the big four lenders downunder to participate fully from July 2018 by feeding credit rating agencies with detailed credit card and loan payment information.  What this means is a more transparent and holistic view of one’s credit worthiness at a national level which is expected to impact the amount of loan to be granted from Australian lenders.

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In fact, just this month Bloomberg reported that according to UBS Group AG analysts, the new regime which brings about more genuine assessment of spending behaviours (Aussie banks have displayed consistent under-estimate of living expenses) would curtial borrowing power of the A$1.6 trillion by as much as 35%!

This has big implications for property investors in Australia who would do well to start looking elsewhere for leverage.  By and large, it is still a breeze for non-residents to borrow from Singapore banks for their Australia property purchases, who requires just 6 month’s of payslips with matching bank statements showing salary-crediting.

 

2. Need for AUM (asset under management)

However, for foreigners, most lenders in Singapore would require onboarding of preferred or priority banking which means you need to park around S$200,000 of funds with the bank here in Singapore.

This could be waived in certain situations or you might be asked instead to earmark a much smaller sum equivalent to 36 months of the mortgage instalment payable upfront.  This requirement can actually become an advantage (see next point) if you know how to make full use of currency movements.  You should speak to our dedicated team of mortgage consultants who would guide you step-by-step on how to secure your Australia property loan in Singapore.

 

3. Currency risk when financing in SGD – boon or bane?

Financing your Australia propery purchase from Singapore banks also present a unique opportunity to profit from currency movements, notwithstanding the risks involved which can be mitigated.

Take for example in recent months due to fears of China’s economic slowdown in the face of tariffs and trade war from the United States, Aussie dollar slips against the Sing dollar dropping to a recent low of $0.997 on 15 Aug.  This makes a good entry point for one to take out a mortgage in SGD for financing Australia property purchase, with a view to profit from a subsequent rise in AUD/SGD which leads to a smaller loan in Aussie dollar terms.

Supposed John who works in Hong Kong buys his Melboure apartment for A$800,000 with a 60% LVR mortgage from a Singapore bank at A$480,000, which he took in S$ financing and converts at AUD/SGD $0.997 to S$478,560 and service the loan with an interest at 3.8% over 30 years tenure.

Imagine Aussie dollar recovers back to FX rate of AUD/SGD at $1.050 in a year’s time, and John decides to switch his loan base currency from SGD back to AUD, he would convert his loan outstanding of S$469,835 to A$447,461.  Had he taken the loan in AUD back then, at the same interest rate of 3.8% over 30 years, his loan outstanding would now be A$471,249 instead after 1 year.  This translates into a savings of A$23,788 for John which is equivalent to a reduction of almost 5% on his original loan amount of A$480,000!

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4. Interest-only servicing option

Another key difference is that Australian banks offer interest-servicing mortgage option where in the initial years of the loan (usually 5 years) borrowers need only pay the interest component without any reduction in principal every month. The central bank RBA (Reserve Bank Of Australia) estimated that up to A$360b (1/5 of the mortgage market) of IO (interest-only) mortgages would roll-over to P+I (principal + interest) over the next 3 years which some has called this ticking time bomb.  The mortgage reset to P+I will place great strain on borrowers struggling to hold on to the property especially at a time when cash rate might be adjusted up.

IO loans might not be such a good idea for long-term investors in Australia property.  Still, it is no doubt for an attractive leverage option available to those who could borrow from Australian banks (new requirements has it now that no more than 30% of new loans issued every month can be IO loans).  The next few years might throw up buying opportunities indeed at firesale prices, but only for residents in Australia who could buy from the resale market which is not still not accessible to foreigners.

 

For a more indepth understanding of how one can qualify for Australia property loan financing from Singapore banks, speak to our team of mortgage consultants today, obligation-free!

 

Since 2014, MortgageWise.sghas provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements.  We aim to build trust with clients for longer-term partnership and not just do product-pushing for a one-time deals unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us.  See our clients’ testimonials.

 

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Australian Mortgage

Australian Mortgage For Foreigners – AUD Or SGD

We are a specialty boutique mortgage firm based in Singapore that helps both Sinaporeans as well as Asian-based property investors with their financing options from banks in Singapore. In a recent article, I talked about how an investor should always take out a mortgage on an overseas property investment in the same currency as that in which the subject property is valued in. That is to circumvent the risk of a “margin call” or call to pay down on one’s outstanding mortgage due to unfavourable currency movements. Does this apply to investors of Australian properties as much as that of UK properties (the only two overseas market that we cover at the moment)?

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Certainly it does in general but if you are Singapore-based investor with most of your income source in Sing dollar, you might be quite tempted to opt for a Sing dollar mortgage for speculative reasons. You see a lot depends on your view of the currency pair with AUD/SGD trading at near its historical lows (see chart from XE.com). Since the slowdown of the Chinese economic powerhouse from 2013, the pair has fallen steadily from a high of 1.30 to the current range of 1.05 range-bound. Even during the Great Recession of 2008 it went down to the 0.96 range which is not very far from where we are today. If you hold the view like some that China’s new 21st century fiscal policy of OBOR (One Belt One Road), which is a huge initiative to re-define and broaden the original silk road that links not just China to India, but now encompassing a region from China to Eastern Europe, Eastern Africa, Middle East as well as along the southern Maritime Silk Road to South Asia, is set to lead the next economic and commodities growth cycle, then Australia might become a beneficiary once again. And we might yet see AUD/SGD heading back to 1.30 level or higher as demand for resources go over the roof with infrastructural projects in the pipeline funded by the China-led AIIB (Asia Infrastractural Investment Bank) where many of the its members come from the 60 countries in the OBOR region.

Australian Property Loan

Source : XE.com

I am neither a qualified economist nor a forex expert to be able to make any judgement call, so I will have to leave that to the savvy individual investor. Certainly there is some comfort knowing that AUD/SGD hit its base level of near 0.96 during the Great Recession and AUD has much more potential to appreciate from this point over the medium to long term. If that happens, by taking out one’s Australian property mortgage and choosing to convert the loan to SGD now, there will be minimal impact for someone earning his income in Sing dollar terms. On the contrary if you are a Singapore-based investor and you take the loan in AUD terms, you might see your mortgage horribly ballooned over time even as you strive to pay down your mortgage diligently over the months. Hence this decision can be quite a tricky but critical one at the point when you draw down your loan near the settlement of your purchase.

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The option of Sing dollar financing for Australian property purchases may not be available to all depending on one’s nationality, tax status and income source currency etc. Also it may be noteworthy to some that lenders here in Singapore can even offer certain clients a dual-currency mortgage option where the borrower can take differing positions over time in SGD versus AUD and opt to swtich from one currency to another throughout his loan tenure. Do speak to our mortgage consultants who can better advise you what are the best options available from Singapore banks at the moment, and the maximum loan a foreigner could take out within Singapore’s TDSR (Total Debt Servicing Ratio) framework which now stands at 60%.

Now if you are not from Singapore but another Asian country with income source neither in SGD nor AUD, you have more considerations to mull over. Obviously you will need to consider and take positions in more than 1 currency pairs. However with SGD often touted as the safe haven currency of sorts in this part of the world, due to Singapore’s stable socio-political environment and forward-looking government planning and economic policies, the rising middle-class and HNWI (high networth individuals) in Asia might want to consider parking some of their funds here in SGD which will then facilitate the servicing of their mortgages in Sing dollars. This might also turn out be a smart thing to do as lenders in Singapore might be more prepared to lend out in SGD to non-citizens for their Aussie property purchases when they agree to join the bank’s priority or private banking with the commitment of a certain minimum AUM (asset under management). Should the scenario of AUD/SGD at 1.30 materializes, AUD would very likely have also appreciated against all major Asian currencies, however your funds parked in Singapore has already been converted to SGD earlier and now serve as a “hedge” for you.  You may opt to use these funds to pay down the SGD loan if you like.

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Finally having talked so much about the benefits of doing this “conversion” of your Australian mortgage from AUD to SGD to take advantage of the favourable exchange right now, it will not be responsible for us not to highlight the flip side risk – which is if AUD/SGD is to depreciate against all odds to 0.96 or worst going below 0.90? Well the biggest risk to that, which we have covered in great details in another article, is that of a “margin call” or call from your lender to pay down on the loan, as it would have breached the LVR limit (usually 60-70%) in AUD terms. So caveat emptor!

Once again speak to our team of consultants at MortgageWise who can show you the best options from lenders here in one of Asia’s rising global financial and wealth management centre.

 

At MortgageWise, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of mortgage products for banks and financial institutions in Singapore.

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Australian Property Loan Curbs For Foreigners

In recent months news of more loan curbs for foreigners by banks in Australia as well as higher stamp duty surcharge imposed by various States downunder has raised concerns for those with vested real estate interests in the country.  In Sydney, New South Wales, foreign property purchasers will now pay a 4% stamp duty surcharge and in the Victoria State (where Melbourne is) this surcharge has now been raised from 3% to 7% since 1 July.  Will property prices begin to correct going forward as demand from non-residents is reeled in?

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Since April this year, the big 4 banks – ANZ, The Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac have one by one stopped issuing loans to non-residents with 100% foreign income, with the last one to do so being NAB which came into effect on 18 Jun.  They have also introduced more stringent measures for overseas lending like cutting down on the maximum LVR (loan-to-value ratio) for non-residents from 80% previously to 60-70%.  They have shut the door completely on those with foreign income of a self-employment nature and disallowed lending to properties in company names.  Some like NAB will now take a haircut on foreign income in the credit assessment of up to as much as 40% thereby substantially reducing the amount of loan available for purchase.  Westpac has completely stopped lending to all non-residents and temporary residents.

The big 4 Australian banks with operations in Singapore still made available their lending to Singaporean investors through their Singapore branches.  However as these operations are in Singapore they would be subjected to loan curb measures here like the TDSR (Total Debt Servicing Ratio).

There are more woes for investors who are foreign to both Australia and Singapore and are unable to obtain financing from their home countries.  Some might have to pull back on their purchase intentions.  We do have a few banks here in Singapore that could still cater to this segment of people who are unable or who do not wish to fork out large sums of cash to make a full cash purchase in Sydney, Melbourne or Perth – the 3 major cities where financing are available from Singapore banks.  Do speak to our consultants today and we will help you with the best option avaible in the market and the required documentations.

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In terms of income qualification most banks in Singapore will go by the usual assessment for non-Singapore denominated foreign income: namely at least 3 months of monthly payslips with matching bank statements showing the salary crediting, as well as official tax returns from the various regimes.  Most banks do take a haircut to account for the higher risk involved in overseas lending, ranging from 5% to 20%.  LVR might still be at 80% especially for those with solid income profiles and clear documentations, but do expect most banks to be more comfortable at 60%.

In cases where income fell short for the required loan quantum, banks here can still lend by way of liquid assets parked and pledged in Singapore where additional income is “derived” by applying a certain formula.  This might still make sense for foreign investors who see the strong Sing dollar as a safe haven currency especially if it continues to remain relatively strong to Aussie dollar in the near term with US Fed’s impending monetary tightening policy going into 2017 at a time when Reserve Bank Of Australia (RBA) has just cut its cash rate to an all time low of 1.50%!

 

At MortgageWise, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of mortgage products for banks and financial institutions in Singapore.

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