Foreign apartment investor, settlement risk is soaring following Australian banks refusing to lend to foreigners. Immediately after discovering 1,000’s of fraudulent home loan applications by Chinese apartment investors, Australian banks have stopped lending to all foreign property investors. Foreign investors are struggling to obtain financing from local banks and cannot get their money out of Mainland China.
In April 2016, The Australian Reserve Bank (RBA) announced concern regarding the number of Chinese foreign investors in the off-the-plan apartment market (estimated to be in excess of $60 billion) as a significant and a key risk to the nation’s financial stability.
The term “apartment settlement risk” is when a property investor has entered into a contract of sale to purchase an off-the-plan apartment from a property developer. Triggered by the current apartment banking credit crunch, foreign property investors are under duress as they cannot obtain finance to complete the contract of sale and are defaulting on the settlement date. As reported, two-thirds of foreign property investors will not settle and is referred to as “apartment settlement risk” as developers are increasingly rescinding contracts and reporting mammoth settlement defaults.
Recommended article published in the Australian: The ingredients for the next banking “scandal” are now sitting on the table ready to be mixed. It will be a scandal like none other in Australian history because it will involve Chinese rather than Australian residents as the victims. The Reserve Bank has forecast a glut of apartments but has not explained to Australians the involvement of the Australian banks and APRA in creating this crisis (Reserve Bank warns on apartment glut, August 6)
Australian Banks have literally surprise bombed [Pearl Harbour] the off the plan apartment market, terminating foreign property investor lending. Australian Banks have literally surprise bombed [Pearl Harbour] the off the plan apartment market, terminating foreign property investor lending. The market is in a panic over settlement risk with overseas investors not able to obtain finance and complete off-the-plan apartment purchases. An estimated 44,784 off the plan apartments are scheduled for completion and settlement in 2016. In 2017 a further 52,920 – based on apartment approvals.
Reserve Bank of Australia (RBA) says Melbourne, Brisbane apartment glut could increase settlement risk. The coming wave of apartment completions in Melbourne and Brisbane raises the risks of settlement failures, the Reserve Bank of Australia warns in its latest statement.
Sales of new residential properties to offshore buyers could be much higher than local banks estimate, with about one in four developments bought by foreigners, raising risks for banks and the economy, warns ratings agency Fitch Ratings.
Standard & Poor’s has waded into the volatile debate on Australian apartment prices, noting a rising shadow of depreciation. The ratings agency, in its latest report into the state of the Australian housing market, echoed statements from the Reserve Bank in saying “settlement risk” was on the rise, particularly in two of the nation’s top three markets.
The unthinkable has started to happen. The mass of Chinese property buyers who snapped up Australian apartments “off the plan” on the basis of a 10 per cent deposit have started to walk away from their agreements in Sydney. Sydney’s largest apartment owner and developer Harry Triguboff has confirmed that this is happening and that by rescinding the contracts the Chinese lose their deposit and the agents must return the commissions.
ME Bank, which is owned by 29 superannuation funds, is the latest lender to ban foreign borrowers from taking out mortgages, adding to growing fears about the scale of possible fraud and money laundering under investigation by the nation's top five banks. It is the second lender partly relying on securitisation and foreign investors to have cut back on mortgage lending in the past week.
The number of new apartments due to settle over the next two years has hit record highs in Australia's capitals, raising the risk some buyers will not make good on their purchases. The volume of new apartments is approaching, and even exceeding, the average number of apartment sales overall in the past five years, on CoreLogic figures.
A tiny proportion of off-the-plan apartment sales fall over, according to settlement figures from law firm Maddocks. Partner and head of the firm's development practice team, Nick Holuigue, said its data showed a default rate of just over 2 per cent from over 800 settlements handled by the firm between February and April.
There is a growing risk that new apartment buyers will not complete their purchases due to a high-rise glut, falling prices and a drop-off in foreign buyers. Key points: Forecast of 231,129 unit completions over next two years Sydney, Melbourne and Brisbane dominate unit build - 206,710 between them Foreign buyers either banned from getting loans or required to have 30pc-plus deposit Australia's apartment building boom is yet to pass its peak, with analysts at CoreLogic RP Data predicting that the peak of apartment completion will not be reached until next year.
NEW unit owners, and developers, are learning a rarely taught lesson in Australian real estate. Property is not always the golden ticket to increasing wealth.
A construction boom in central Melbourne has had industry experts talking oversupply on the apartment scene for months and now the predictions have proved ture - an increasing number of units have lost value even before they’ve been built. Other near-new units are reselling below their last purchase price.