ANZ sells bubble, mortgages, in China

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In October last year, Phil Chronican, chief executive of ANZ Australia, warned Fairfax radio station 3AW that:

“when there is a lot of cheap money around that results in asset price inflation”.

11 months later, with Sydney going nuts, Bloomie reports that:

ANZ OFFERING LOANS TO CHINA RESIDENTS TO BUY HOMES IN AUSTRALIA
BN 09/26 03:18 *ANZ SEES AUSTRALIA HOME SHORTAGE RISING TO 370K BY 2015 BN 09/26 03:17 *ANZ ESTIMATES DWELLING SHORTFALL OF 270,000, CHRONICAN SAYS BN 09/26 03:17 *ANZ’S CHRONICAN: RISING COSTS, RED TAPE TO CONSTRAIN BUILDING BN 09/26 03:16 *ANZ’S CHRONICAN: GOVT SUBSIDIES WORSEN AFFORDABILITY BN 09/26 03:16 *ANZ’S CHRONICAN: SEES 5% RISE IN AUST. HOUSE PRICES NEXT 12 MOS BN 09/26 03:16 *ANZ’S CHRONICAN: WEAK OUTLOOK, CAUTION TO MODERATE PRICE GROWTH BN 09/26 03:15 *ANZ’S CHRONICAN: AUSTRALIAN HOUSING BUBBLE CONCERNS OVERSTATED.

I don’t want to jump to conclusions given the scarcity of the story but sheesh it’s got the makings of ugly.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. Nick the GreekMEMBER

    not sure about China, but they certainly offer Aussie Property mortgages to Hong Kong and Singapore residents. It wouldn’t surprise me that they offer Aussie mortgages to China as i believe they have the banking licenses to do so having bought RBS’s old franchise there.

    • See below – it seems to be based out of Singapore (or the URL indicates that anyway) but it applies to residents of China, Dubai and several other countries.

      • It would be real interesting if you could find out the true leverage they offer. They say 70% but I am sure if you talk to them they would offer more.

      • Nick the GreekMEMBER

        can be up to 80% if you take it in Aussie dollars. 70% if in Singapore dollars.

        I live in singapore and have been looking at potential mortgage options.

        Also, most of the local and international Singapore banks will offer Australian investment property loans, DBS, Citi, Standard Chartered, OCBC etc all offer Aussie investment mortgages.

        Trust me, australian property investment is rife in Asia. I have a real estate contact on the Goldcoast and his business is basically 100% asian investors.

  2. We Aussies are very good at selling our birth rights. Much easier than being productive or creative.

  3. Wow….

    Many people in the industry assume that the Chinese are purchasing Aussie property with cash as to filter their money out of the country.

    The chinese buy the most expensive property in Sydney therefore Australia and the world.

    1 bed apartments in Chatswood selling for $700k and 2 beds for over $900k.

    If they are using leverage from Aussie banks then my god we are absolutely screwed.

    • Yup, looks like we’re in the business of loaning overseas-funded money to leveraged-up overseas speculators; this in addition to our homegrown penchant for property speculation.

      This is going to end so, so poorly.

    • That is surely not happening!

      And the Australian Taxpayer going guarantor on the ANZ!

      Brilliant.

      This is what happens when Banks cannot fail.

      Write the biggest book you can get away with, collect your bonus and then leave the building.

    • Nick the GreekMEMBER

      you need to keep in mind that $1m property is nothing to a lot of Asian investors. For example Singapore has public housing selling for $1m+.

      It is a massive, massive bubble driven by artifically low interest rates (SG interest rate is 0.9% and you can get a mortgage all in for 2% if you shop around – basically free money).

      I was looking at a new Singapore property development for cluster housing in Ang Mo Kio (central Singapore), they want S$3.5m for a 3,000 square foot cluster house. It is crazy times.

      Those who can’t afford to get into the local property market are buying internaitonally in Malaysia, Thailand, Australian and NZ.

      It is out of control.

    • For Chinese upper-middle class in urban areas it’s actually an attractive proposition. Our price-to-income ratios are still significantly lower than what you see in Tier 1, hell even maybe Tier 2 cities.

  4. Not just a rumour…

    “Our Australian Property Loans makes it simpler and more convenient for ANZ customers to purchase, refinance, or release equity on their Australian residential property, whether for owner occupation or investment purposes.”

    http://www.anz.com.au/singapore/en/Personal/property-loans/australian-property/

    “Who can apply for an Australian Property Loans?

    – Australian or New Zealand citizens & passport holders who are not living in, or tax residents of Australia.
    – Singaporean citizens and permanent residents.
    – Foreigners who are residing and working in Singapore.
    – Foreigners who are resident of Indonesia, Taiwan, Malaysia, Cambodia, China, Dubai, Fiji, Hong Kong, and Philippines, and not working or residing in Singapore.”

    • Nick the GreekMEMBER

      and even if you get it in Aussie dollars the interest rate is cheaper than if you get it onshore. I was quoted 3% all in for an aussie dollar mortgage by ANZ and Westpac. As long as the loan size was over $2m haha

      If i did it in Singapore dollars my all in rate was 2%

    • Isn’t Singapore restricting Foreign Ownership in a bid to stabilize prices, and prices are now stabilizing?

      http://www.cnbc.com/id/100992671

      It can’t be pure coincidence that Phil Chronican diverting Singaporean interest to Australian Loans.

      Meanwhile, having the guile to tell Australians to wait and watch for another year.

      The ethics of Bankers.

  5. If a formal way of buying Australian property exists like this, then it is naive in the extreme to think that money is not coming in for established homes through australian contacts.

    Great news – we are importing the US loose liquidity and we are importing the Chinese housing bubble.

    Time for Dam to arrive and gloat i think 😉

  6. Nick the GreekMEMBER

    if you think Aussies are mad for property speculation you have never met a Singaporean, PRC or Hong Kong property investor.

    Even though the Singapore property market has corrected 4 times since 1996 (on average around a 30% correction), you will not find anyone who ever thinks property goes down.

    My net income after tax is around US$400k. i’ve been offered various loan sizes between US$4-6m.

    There are absolutely shedloads of asian investors leveraging up to their eyeballs and investing in local and Australian property.

    It is so rife that the MAS (monetary authority of Singapore) has introduced new terms for residents that their total monthly repayments can not exceed 60% of their net income.

    Just think about that, there are so many people in Singapore spending more than 60% of their net income servicing debt!

    It is totally, totally out of control and can only end in a crash of epic proportions, how long that is is anyones guess.

    Meanwhile inflation is rampant as interest rates remain <1% and have been there for at least 5yrs i believe.

  7. So, in essence, the “rich Chinese buying up all the Aussie properties” propaganda is utter nonsense. In short, it is a result of an Aussie bank expanding credit to overseas, which is essentially the same mechanism as when the bank did the same thing to the local punters.

    I never believed the propaganda and nor should you; NUMBERS SIMPLY DO NOT ADD UP.

    There are 112 Chinese billionaires in 2013 whose combined wealth is less than $300b according to Forbes. In contrast, Australia’s housing stock is $3000b (see; http://www.macrobusiness.com.au/2013/09/the-history-of-australian-property-values-redux). Australia’s household composition is roughly 1/3 outright owners, 1/3 mortgaged owners, 1/3 renters. That means the first $1000b worth of housing is fully owned, another $1000b worth of housing is mortgaged and the third $1000b is owned by RE investors. The composition of the RE investors is not pretty either (14% of the total taxpayers reported rental income, of whom 70% claimed a rental loss).

    In other words, even if the government can come up with an inventive (or silly should I say?) measure to import all the 112 Chinese billionaires, with their total wealth, that would not be nearly enough to offset the gigantic debt hole that is still expanding. Plain & Simple.

    • “rich Chinese buying up all the Aussie properties”

      Obviously this is not the case. However if 20,000 rich Chinese come and buy one property each in a shortage market like Sydney, then that means 20,000 rich Aussies miss-out and they then take their dollars down-market and buy 20,000 lesser houses and cause 20,000 middle-income Aussies to miss-out. They then take their dollars down-market and cause 20,000 poorer Aussies to miss-out on housing.
      112 Chinese billionaires are not the threat. It’s thousands of actual buyers doing the damage to Aussies. Plain & Simple.

      • Once you allow debt & leverage to play into the equation, then what is the difference from what the banks did to the local punters (especially if the credit is coming from the same Aussie banks)?

    • You are missing the simple fundamentals of the property market. At any one time there is roughly 5% of the stock in Australia available for sale. The sale price of that 5% of stock dictates what the other 95% is worth.

      Working on your numbers 5% of $3000B = $150B.

      Cheap money inflating that 5% stock is inflating the other 95% meaning more equity mate loans to invest in more property.

      • $150b is still a big hole to fill with cash even for those filthy rich Chinese (the government would need to import half of the Forbes list). Plus, that “5% decides the price” mechanism would do nothing to reduce the total debt.

  8. Looks like the Australian property market is a house of cards waiting to collapse!

    Ah well at least people can’t say I didn’t warn them!

  9. reusachtigeMEMBER

    This is great! We should encourage it and cheer it on. Lower rates and more risky lending … please oh please!!

  10. It looks like MP is not going to be enough, we need more then a one prong approach to sort this mess out. Restraining locals only to keep allowing foreign investors open slather will just make matters worse. Why Rudd and Swann thought opening our market up to foreigners was a brilliant idea Ill never know.

    I look forward to the forthcoming reset of the Australian economy.

  11. Nobody is talking about sliding rental market, every 50 meters at my suburb there is rental sign and sitting there for weeks, I have never seen a situation when good apartment was not rented out after first inspection for higher than asking price.

    This is new phenomenon for AUS. Thanks to army of investors flooding the market.

    • darklydrawlMEMBER

      Oh, it isn’t new. Just hasn’t been around for a while.

      I can recall numerous times where you could walk up and get a price or rent reduction without question. Places were plentiful and buyers / tenants not so.

      All these things go in cycles, the magic is picking when the cycle will be. That is the tricky part.

      Although the fact the MSM, RBA and Government are starting to chatter about bubbles and housing prices might suggest ‘sooner’ rather than ‘later’. Although what that timeframe is, that is the trillion dollar question.

  12. The Aus property bubble is just one small piece of a worldwide asset bubble, all built on the back of cheap money. With foreign money flooding in to our property market, it seems likely that this particular bubble will not burst until the flood of cheap money ceases (which it eventually must). When that happens is anybody’s guess.

    • Yes- this really is it. We are a skiff bobbing about in a storm on an ocean of loose liquidity, the same disaster is playing out everywhere.

      I do sometimes wonder if this will continue until we end up with a very clearly defined global asset holding class and a class of global peasants and fiat currencies are worthless in today’s terms.

      The flip side is that things always go in cycles. It’s like a two rule system. 1. Things always go in cycles in business and finance. 2. Just when you think that rule no. 1 doesn’t apply, you should apply rule no. 1.

      I’m certainly putting my main bets on the latter.

  13. “ANZ Sees Australia Home Shortage Rising to 370K by 2015” scream the headlines.

    So, what to do? What idiot said, “I know! Let’s get rich foreigners to buy up a whole lot of Australian real estate at vastly inflated prices! Let’s create an even bigger shortage!”

    But if that wasn’t bad enough, we still persist with this idiotic plan, with foreigners outbidding locals, (whether they are buying outright or borrowing doesn’t matter). Remember too, a lot of Chinese buyers don’t care if their properties are left empty.

    So what will the government’s next brainwave be? On second thoughts, I don’t think I want to know.

  14. I know there is speak of a bubble, But I think the bubble only applies to locals, Lets face it around the world Australia is an extremely attractive place to live, so to overseas born people it only makes sense to them that Australia is also a extremely attractive place to invest, when looking at places like the US, the UK etc there is a awful lot of people who wish they were us, I can thus see our government allowing people who are very well off to invest in Australia for citizenship, the house bubble will not be going down anytime soon, the government cant afford it, they want people to come here, invest, work and pay taxes to support the pensioners of the future. Look at other major capitals around the work and see just how expensive it is to live in a 2 bedroom dogbox in cities such as Rome, London, New York,Paris, Hon Kong, Singapore etc etc, now Australian capitals dont seem as expensive now. Locals will be pushed further out and basically made to live in regional areas to support a family, yes there are houses that are cheap in the likes of the UK and the US but where are they in relation to the capitals? keep hold of your hats because we are in for a bumpy ride and its the locals that are going to miss out.