Foreign lending crackdown won't damage property market

by Julia Corderoy12 May 2016
The bank crackdown on foreign lending will impact the Australian property market, but its effects won’t be too far-reaching, a prominent broker has said.

Speaking to Australian Broker, Ren Wong, the CEO of N1 Loans, said the bank restrictions on lending to foreign borrowers or excluding foreign-sourced income from mortgage applications will only materially affect one small segment of the Australian property market.  

“As per the banks’ comments, foreign borrowing only made up a minority portion of the loan book. The restriction to lend to foreign borrowers will definitely impact the real estate market, but will likely be limited only to off the plan properties, which in itself is a minority market of the overall real estate industry,” Wong said.

Foreign investment has often been seen as an important pillar propping up the Australian housing market. According to the Foreign Investment Review Board’s latest annual report, approved investment in real estate – comprising commercial and residential proposals – increased by 30% in 2014-15, reaching $96.9 billion. Foreign investment in residential real estate specifically increased by 75% in 2014-15.

As a result, the bank crackdown has prompted concerns that it could deflate the Australian property market.

However, Wong says while N1 has had to turn away a surge in enquiries about foreign investment, he said the ASX-listed firm has not noticed a material impact to demand.

“We did receive a surge of phone enquiries about overseas lending but we have told them of the policy change,” he told Australian Broker.

“The Australian housing market is driven by supply and demand… Given the strong pipeline in pre-approvals, I believe the overall real estate market is still sustainably healthy. 

“If you notice [N1’s] ASX announcement on 4th April, N1 Loans’ pre-approval pipeline doubled over the past quarter, increased from approximately $16.3mil per quarter to $31.7mil per quarter as of Q3 FY16.”

Wong added that foreign lending is also rarely the sole priority or specialisation of mortgage brokers. 

“In 2014, I did mention in an article that foreign borrowers have lower return because we are unable to cross-sell; and brokers don't want to be perceived as just selling home loans.”

N1, who listed on the ASX in March, runs Australia’s only Chinese language mortgage comparison site. Wong says the site – which was created to service the local Chinese-speaking population – receives 97% of its visitors from within Australia.