For many Singaporeans, one of the top choices of country for overseas property investment is Australia. Unsurprisingly, it is also the top choice for Malaysians, and amongst the top three choices for Indonesian and Hong Kong investors.
Being the preferred location for studies and retirement, along with a stable economy, perceptions of higher yields and lower risks are some of the reasons for the continuous flow of property investors.
However, in today’s market, Australian property investors are finding it increasingly difficult to secure financing on their investments in Australia as major institutions have tightened their lending measures.
Earlier in 2016, the big four Australian banks shut down lending to offshore borrowers for home loans so as to manage their risks and exposure. In recent months, more and more institutions have been shutting down lending for Australian properties, regardless of whether the borrowers are locals or foreigners.
In today’s market, many are stuck in the situation where their financing is due for settlement to take place, yet at the same time they are unable to obtain any financing due to the recent changes. What this means to the investors is that they are likely to forfeit their deposit paid and in the worst case, they may even face lawsuits from the developer.
Here are some factors which may affect your financing options:
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Location of subject property
Just like there are areas in Singapore where the banks are less inclined to provide financing, lenders (for Australian properties) in Singapore also have specific catchment areas which they will finance (some banks go by specific radius from CBD and others may go by specific suburbs), while lenders in Australia finance anywhere in their country.
If the property is located in Perth, Melbourne, Sydney or Brisbane, you may still stand a chance in securing financing from the lenders in Singapore.
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Internal size of subject property
Size matters. There are minimum size requirements for most of the banks in Singapore and Australia. Generally, for houses or apartments with an internal area less that is than 50 square meters will result in lesser options and/or lower loan-to-value ratio.
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Type of property
Apartments, house and land purchases (construction), and townhouses are amongst the favorite types of properties purchased by investors. While you are more likely to be able to obtain financing for apartments and townhouses, there are currently no lenders in Singapore that provides financing for house and land purchases (construction).
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When is settlement due
Most of the lenders will only process your loan application 3 months prior to settlement. However, there are a handful of lenders who can provide off-the-plan financing if you’re looking to secure your loan early.
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Nationality of borrowers
Whether you’re Singaporean, Australian Permanent Resident or non-resident (offshore borrower), this too plays a part in your available options.
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Type of income
Self-employed persons may face more difficulties in securing financing. Be prepared that the lenders are going to ask for a lot of documents; while some banks may ask for Notice of Tax Assessments within the past 2 years, others may ask for bank statements to show salary crediting, just to name a few of the documents.
Salaried employees may be asked to provide latest payslips, tax assessment statements, CPF Contribution History, letter from employer and/or bank statements to show salary crediting.
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Serviceability
In Singapore, most of the banks will access your loan serviceability based on your TDSR (Total Debt Servicing Ratio). In Australia, the banks will use an alternative way to compute your serviceability which includes not only your liabilities, but also take into account of your daily expenses, number of dependents, kids’ education fees etc.
3 years ago, when you first placed your deposit for the property, you may have heard that with simple documents, you can surely obtain financing later on when settlement is due; however, that’s not the case now. I’ve met people who were unable to secure financing; the cash-rich ones may have settled in full cash, and the not-so-cash-rich ones may have forfeited their deposits.
In a nutshell, there are many factors which will affect your ability to secure the loan for your Australian property; and the above mentioned are just some of them. It is important to do your research and due diligence before making a decision on an investment property overseas.
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