Banks accused of overreaction on foreign lending

by Julia Corderoy03 May 2016
A range of developers and real estate financiers have criticised the three major banks that have stopped lending to foreign buyers, suggesting the move is an overreaction that could result in the banks shooting themselves in the foot.
The UDIA Victoria lunch saw a number of senior figures commenting on the recent trend, in which banks have stopped lending to foreign buyers in order to protect themselves from a perceived more volatile area of the market.

Managing director of property at Wingates, Mark Harrison, said the policy could end up being a “self-fulfilling prophecy" and that it “could lead to defaults” due to banks previously willing to provide development finance to foreign buyers now refusing to provide financing to the same buyers to settle apartment purchases.

Also critical was Gersh Investment Partners director Tom Roe, who described the moves by ANZ, Westpac and CBA as “a complete overreaction to the world economy".

“The focus needs to be on the regulators [APRA and the Reserve Bank],” he added. “Tough questions need to be asked of the regulators.”

Chief investment officer at Maxcap, Brae Sokolski, described the banks’ decision as “unwarranted”.

However, Martin North, principal at Digital Finance Analytics (DFA), played down such concerns, citing that the new policy from the three banks will have minimal impact on both their and the wider property market’s economic health.

“Australian banks have not lent that much to overseas investors – maybe 3-4% of their portfolios, so their decision to withdraw will not have a material impact on their loan books or profitability one way or the other,” North told Australian Broker. “It won’t move the property market either.”

The big banks’ decision was a reasonable one, stated North.
“Overseas borrowers taking a local loan could be a higher-risk proposition, because if rental income is insufficient to service the loan, banks would need to get payment from overseas, and this could be tricky.

“In addition, if house prices were to slide, overseas investors might be more willing to cut and run, and we also know that some investors from China are finding it harder to get funds out of the country.”

“I don’t think it was that significant a decision, because prospective foreign investor borrowers can still get loans from foreign banks here, and other sources. It’s not that big a deal in my view.”