Rising Defaults By Foreign Investors
A report from The Australian. “As a renowned teacher of English in China, Liu Jiabing planned well for his daughter’s education. He chose a good university in Australia, and bought an apartment in Melbourne that is due to settle next month. But now the apartment near Monash University that he bought off the plan for $600,000 is keeping him up at night. ‘At the very first, I was told I only had to pay 20 per cent downpayment,’ Mr Liu, who works at a prestige foreign language school in Nanjing, in China’s east, told The Australian. ‘Then they told me I had to pay 30 per cent, and later 40 per cent, as the banks won’t lend and we have to borrow from small financial organisations. Last night I was told I have to pay 55 per cent for down-payment. But how am I supposed to find so much in cash in such a short time? I still have to pay my daughter’s university fees.’”
“Mr Liu is just one of those Chinese parents who buy homes, usually new apartments, before sending their children to Australian universities. However, these buyers are now struggling to settle their purchases after all the big banks shut down lending to overseas buyers. They may have to pay in cash, resell at a loss or simply lose the 10 per cent deposit.”
“AC Property, a Melboune-based property portal, has four or five calls every day from buyers who seek to resell their off-the-plan apartments after finding it hard to settle. ‘We have been referring our clients to mortgage brokers to see if they can get alternative finance, but we haven’t seen a single case of success so far,’ said AC Property director Esther Yong.”
“Mr Li, who declined to give his first name, is one of those resellers after the Melbourne CBD apartment his parents bought two years ago failed to settle. ‘Everything looked fine when my parents bought it two years ago, and we were told they could get bank finance as overseas buyers,’ said Mr Li, a sales representative in the telco industry. ‘But now they could not get finance and could not settle.’”
“Mr Li’s parents, based in Guangzhou, in China’s south, have already missed the settlement deadline of July 18 for the apartment they bought for $440,000. The developer is now charging them about $150 a day as penalty, which is pushing Mr Li to resell as soon as possible. ‘It’s OK if we can just get back 5 per cent, but we haven’t got any buyer yet,’ he said. ‘If we walk away, the worst thing is that we lose the 10 per cent deposit. But if we find ways to settle it, I am not sure what we can make out of this, as the market is not looking pretty.’”
“Boxing Overseas, a Nanjing-based agent specialising in Australian properties, only sold two properties last month, compared with about 30 in previous months. ‘The market is really bad now, particularly after July,’ said managing director Jim Huang. ‘I have heard some agent having over 40 properties at default, which means the buyers just give up the 10 per cent deposit.’”
The Courier Mail. “Queensland’s two biggest financial bosses on Thursday renewed their concern about the wave of inner-city apartments arriving in Australia. Their comments follow uncertainty about whether a rush of building in recent years will result in a glut. Bank of Queensland CEO Jon Sutton, appearing at a Committee for Economic Development of Australia conference, warned of rising defaults in the inner-city apartment market. He said too much apartment building was occurring across Australia.”
“‘There are two apartment buildings outside my office where there are no lights on at night,’ Mr Sutton said. ‘My understanding is there has been rising defaults by buyers of those apartments, particularly foreign investors.’”
The Chinchilla News. “Australia’s residential building boom will soon start to run out of steam, with construction of new unit blocks set to halve by 2020, a report has predicted. The Building in Australia 2016-2031 report says new home building will begin to slow from its 2015-16 peak in the coming year as a ‘tsunami of supply’ impacts the market.”
“BIS Shrapnel associate director Kim Hawtrey said while a lack of supply and low interest rates had driven building activity to its current peak, the major markets - with the exception of New South Wales - would soon shift into oversupply. ‘Low interest rates have unlocked significant pent-up demand and underpinned the current boom in activity, but with population growth slowing and a strong backlog of dwellings due for completion, new supply will outpace demand,’ Mr Hawtrey said. ‘This will see the national deficiency of dwellings gradually eroded and most key markets will begin to display signs of fatigue.’”
“Despite building activity starting to slow, however, the report’s author said work starting on new homes would still track at a historic high over the next 12 months. The findings also indicated investors who once drove the ‘apartment boom’ would no longer fuel the market due to financial restrictions.”
“‘With investors facing finance restrictions and first home buyers sidelined, it will be up to upgraders/downsizers to help cushion the decline in activity,’ Mr Hawtrey said. ‘But we’re not confident, given that the national stock deficiency will have been largely satisfied by 2017.’”