Recent changes to curb foreign lending
In recent months, Australia’s big four banks have cut down on lending to foreign home buyers. The decision follows the introduction of a new tax policy in June aimed at stopping foreign investors sending sale profits overseas.
The Commonwealth Bank, ANZ and Westpac changed their rules earlier this year, with Westpac deciding it will no longer lend to non-resident borrowers with overseas income. Westpac reduced its maximum allowable loan to value ratio (LVR) from 85 to 70 per cent for New Zealand citizens and permanent residents with overseas income.
NAB was the last major bank to restrict foreign lending at the end of June, and said it would only consider foreign home loan applications to candidates with existing Australian income.
The move to curb foreign lending comes after a spike in suspicious applications from overseas homebuyers from China and other areas. These include missing passport pages, salaries paid by tenuous offshore companies, and clumsily translated supporting loan documents.
Some overseas buyers have been thought to borrow money from banks in their country of residence, and then borrow additional funds from Australian banks. The changes mean buyers from areas such as China, Hong Kong, Malaysia, Singapore and Indonesia, who have been heavily investing in Australian property, will no longer be allowed to borrow huge amounts from Australian banks.
According to Credit Suisse, Chinese buyers spent a record $12.4 billion on Australian residential property last financial year. So, as you can predict, the changes are likely to affect the market.
New foreign resident capital gains withholding tax rules also came into effect on 1 July 2016. The change affects real estate with a market value of $2 million or more.
Where a foreign resident sells Australian property with a market value of $2 million or more, the buyer will be required to pay 10 per cent of the purchase price to the Australian Taxation Office.
Real Estate agents can advise foreign vendors that they’ll be able to vary the amount that is withheld at settlement in certain circumstances, and direct them to the Variation application for foreign residents and other parties form.