Foreign income lending rules stopping Aussies, not just foreigners

Foreign investment jumped 19% last year despite bank lending rules, which also hit Aussie expats

Foreign income lending rules stopping Aussies, not just foreigners
Foreign investment jumped 19% last year despite bank lending rules, which also hit Aussie expats 

$72.4bn of residential property was bought by foreigners in 2015-16, the Foreign Investment Review Board has reported. 40,149 applications for investment were approved, also an increase on the year before, with China being the biggest source of investment.

The surge in investment comes despite a crackdown on lending in mid-2016, when most banks stopped lending on the basis of foreign incomes, catching out many brokers. However several non-banks continue to lend to non-residents, such as La Trobe Financial, whilst Citibank will lend to their existing high net worth foreign clients. 

Whilst bank restrictions haven’t prevented foreigners buying Australian property, they have hindered Australian expats. Talking to MPA in March, Empower Wealth CEO Ben Kingsley observed that “Australians who are working abroad are being heavily scrutinised and have caught up in this whole foreign investors crackdown.”

Australian citizens working in Europe, the US and Asia face similar restrictions by Australian banks as foreigners do, Kingsley explains: “they’ve really cracked down on loan to value ratio and in some cases some bank say they don’t have an appetite if they’re not an existing customer.” 

Kingsley warns that even when banks do lend “we’ve had cases where in Australia dollar terms they could be earning more than $400,000 and the banks are only willing to accept 50-70% of their income for the servicing calculators; it’s really frustrating for them.” Kingsley says that although the brokerage is getting more expat customers they’re struggling to place them in loans. 

The FIRB’s figures apply to 2015-2016 and so don’t record the effects of foreign currency restrictions on Chinese citizens announced earlier this year, making it more difficult for them to take money out of China. “I think it’s time for those who relied heavily on the mainland Chinese market to diversify”, Ren Wong of brokerage N1 Finance told MPA at the time “don’t bank on a change of policy in the near future”. 

This week’s Federal Budget penalised foreign investors, who will be restricted to 50% of new development purchases. They will also no longer be able to claim primary residence exemption for capital gains tax purposes and be hit by a $5000 ‘ghost tax’ if their property remains unoccupied. 


 

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