The AFR has reported that one of China’s biggest financial institutions, the banking division of PingAn Insurance, has been offering Chinese investors zero deposit home loans for off-the-plan apartments in Melbourne and the Gold Coast in a move that could stoke further demand from offshore buyers and potentially extend the apartment glut that is developing across Australia’s cities:
“Become an Australian property owner with zero down payment,” said one slide displayed at the [Shanghai] conference. “Join hands with PingAn and realise your overseas property dream,” said another…
“It will open up the Australian property market to a whole new class of investors,” said Eddie Yuen, the Shanghai-based manager of Austpac. “Investors may not have the cash now, but they can still buy a property in Australia”…
PingAn would typically lend Chinese investors the 30 per cent required for the down payment and the remainder would be financed by an Australian bank.
…there was also a risk for developers selling off-the-plan apartments, as some buyers would be tempted to walk away from their initial down payment if prices had not risen at the time of settlement.
A separate article at The AFR notes that the interest rate on the loans offered by PingAn Insurance is 14% for two years, and covers only the initial 10% deposit amount. At the time of settlement, Ping An would then extend 30% of the property’s value to the borrower, who would then seek the remaining 70% financing from an Australian bank.
As noted above, the development greatly heightens risk in the apartment sector. No deposit loans are more likely to attract speculators punting on capital growth, rather than for personal reasons (e.g. future retirement, residency or a child’s education). And without any ‘skin-in-the-game’, these buyers would be more likely to walk away from settlement if prices and the currency do not move their way, which seems likely given the apartment gluts developing in Melbourne and Queensland along with the headwinds for the Aussie dollar.
On the other hand, the move could also significantly increase demand from Chinese buyers, thereby extending the apartment construction boom a little longer, exacerbating the apartment oversupply, and delaying the shock to jobs as dwelling construction declines, which has been tipped to occur from mid-2016.
