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 1sthalf 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 Australian property loans, 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 Australia property loan interest rates when financing in SGD from Singapore 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.