Foreign property buyers turn to sub-prime

By Leith van Onselen

The Australian has reported today that a conga-line of sub-prime lenders is emerging to fill the funding gap as the banks shy away from lending to foreign apartment investors:

Rich-listers and wealthy private investors are setting up funds aimed at lending to foreign apartment buyers left stranded by the banks’ lending bans, in a move that will create a new tier of subprime lending…

Bill Moss, former head of property for Macquarie Group, expects Asian banks, particularly from China and Malaysia, to enter the Australian market in a bid to bridge the funding gap…

“This is subprime lending,” Mr Moss said. “It is no different to what happened 10 years ago on low-doc lending.”

The loans were made against the value of the asset, not the borrowers capacity to repay the debt, he noted…

“At some stage there will be a problem in the apartment market. There is the risk of a crash and the construction of new buildings will stop”…

Mr Moss said apartment prices in some areas could drop by 30 per cent in a year…

According to the report, the sub-prime lenders were charging an interest rate of between 8% to 12%.

Surely this has to signal the end of the apartment building super-cycle? With the apartment market already oversupplied, the banks pulling finance, state governments implementing new taxes on foreign buyers, and China cracking-down on capital flight, how much more juice can be squeezed from foreign investor lemon?

[email protected]

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments

  1. surflessMEMBER

    Given that dear leader has decide to introduce a new visa to boost the real estate bubble, and now Asian banks are loaded to invest in this bubble. Hopefully this will give enough life in the real estate economy until mining kicks into the economy again.

    • That won’t be for something like 15 years, if ever. The current supply glut may well be so large it will never be met by demand again. Look at Asian countries that will have shrinking populations by 2030… quite a few (Korea, China, Japan at the very least).

      • Heh… got me. Unfortunately though, as Reus has demonstrated, facetious can be disturbingly predictive when it comes to do with housing in Australia.

  2. The Australian has reported today that a conga-line of sub-prime lenders is emerging to fill the funding gap as the banks shy away from lending to foreign apartment investors

    Conga-line eh? Sounds like a party…Join the good looking winning side.

    • reusachtigeMEMBER

      Yep, totally. I’m suck of tue command economy commie group think that goes on on this blog. If Chinamen want to borrow money to invest in our housing then let the market decide how much they can borrow. They know free markets better than most races. Get outta the damn way to our socialist leaning government!!! Good in these lenders for stepping in!

  3. Sub-plime? Sub-plime? Wha dis sub-plime?
    Awwwhhhhhhhhh, you funny, you gualo.
    It sublime!

  4. Is there at least some positive in that sub-prime is being taken on by foreign banks? If CHinese and Malaysian banks get saddled with a pile of bad debt, does that affect us?

    • Ronin8317MEMBER

      Only if the Malaysian/Chinese money lenders are not borrowing from Australian banks to fund the subprime 😛

  5. All that chemo & the cancer is still finding ways to survive, & I’ll bet there’s more ways to be found yet!

  6. Good. Shift the risk off our banks so depositors have a better chance of accessing our savings – when it really counts (mean reverted price time!)

    • It is ok. They can cop a high interest rate.
      They are only after short-term bridging finance. It takes time to arrange for enough tourists to each bring in the 50k needed to settle.