Is the risk of settlement as big as it seems?
Hype about the risk of property settlement due to tougher bank restrictions is inflated, according to industry insiders who work with Chinese investors.
The settlement crisis stems from Australian banks tightening loans to foreign income-earners, coupled with China’s US$50,000 ($65,000) cap on the amount of cash citizens can send out of the country per year – effectively drying out the funds Chinese buyers can access for settlement.
But general manager of Basis Point, a financial consultancy handling Australian and Asian capital, CT Johnson called the settlement panic “overblown”.
“Their appetite for Australian real estate is more durable than you might expect, because the Chinese have a greater need, and fewer options, than Aussies do for creating financial security… which means it takes a lot more than stamp duty to make Chinese buyers walk away,” he said.
“[If] Chinese buyers can’t get funding from Australian banks, they can usually fall back on other resources – mostly their own cash, or loans from friends and family.”
Buyers agent Adler Ho agrees the problem has been hyped up especially on the developer’s end of the stick, pointing out that developers which have taken out a loan have a cap on the number of sales they can make to non-residents, reducing the number of troubled foreigners walking away from deals.
A report from UBS in June estimated that only 5 per cent of Chinese nationals who have bought property overseas took a mortgage from a bank in the country they were buying in, with a whopping 58 per cent using cash to finance their purchase.
“This suggests the risk [of settlement] may be somewhat overstated, albeit the ‘fat tail’ of a bad outcome remains if China sharply tightens capital flows,” UBS economists stated in the report, referring to the damage further restrictions could do to demand for Australian property.
Mr Johnson said the findings came as no surprise, as most Chinese buyers may want funds from Australian banks as an option, but they don’t require them.
“Local financing… is usually done at attractive interest rates and it removes the need to move currencies from one place to another.”
However, Esther Yong, director of Chinese-language property portal ACProperty, believes there will be “a lot” of settlement defaults coming up in the next few months.
“Mainly because a lot of buyers were told that they are able to get finance when they first bought the property two years ago. These buyers would have had their funds and assets committed into other areas and might have difficulty moving the funds within such a short period of time.”
Some are so desperate that they have resorted to posting ads online to resell off-the-plan properties they had bought one to two years ago, with many in Bankstown, Burwood, Wentworth Point, Kellyville, Parramatta and Homebush West dangerously close to completion.
“I’m currently handling several apartments which cannot be settled because of mortgage problems, the current owner is prepared to give up the deposit to resell, get in touch if you are interested in having a go at bottom-fishing,” one agent posted on Tigtag, a popular Chinese-language online forum.
By: Alison Cheung
Published: August 26, 2016Tags: apartments, Bankstown, Burwood, China, Chinese, home, market, off-the-plan, Parramatta, property, report, sales, west, 北岸, 悉尼房产