Australians have it so much better than Singaporeans in Singapore when it comes to properties. Not only do they have nicer, bigger homes, they also have easier financing options such as Interest-only payment, etc.
Australians are probably as crazy if not more crazy than Asians with properties. Some Australians will even go as far as poisoning trees that block their view of the bayfront or harbour so that when the trees die, their view becomes unblocked, their property valuation can go up.
Untold wealth has been obtained from buying properties to rent out, so it is not only Asians that are crazy with property.
Scenario (Investing in Australian property): –
For example an AUD$1,250,000 property with 80% loan of AUD$1,000,000 property that is rented out for AUD $1,000 a week will get you AUD $4,000 a month.
Interest rates at 4% per annum equals to $3,333 per month Interest.
As an investor, you have a monthly cash flow of: –
- $4,000 – $3,333 = $667
Most banks in Australia can offer between 70% to 80% loan. Several can offer 85% to 90% loan. Many banks are specifying that for “Interest only” loans only for “Owner occupied” units. This reduces the risk of default for the banks as these are genuine demand for the houses as the owners are occupying the houses.
At an Interest rate goes up to 5% per annum equals to $4,166 per month interest: –
- $4,000 – $4,166 = -$166
Why is “Interest Only” Home Loan risky?
The reason for the risk is that many who had taken “Interest only” loans in the earlier years could have bought the properties with a 80% to 90% Loan-Value-ratio (LVR) and could have used this method to generate rental income and then used this income to buy many additional properties on “Interest only” home loan.
Hence it is only natural that when interest cost rises, these highly leveraged people may be in trouble as banks reel in the loans or impose restrictions.
On the whole, Australians are already highly in-debt to the tune of 123.1% (Debt-to-GDP) in Jan 2017 (Trading Economics), hence we could see further and prolonged pain in bank’s reluctance to lend.
Of course the other reason that Australian banks are reluctant to lend to Asians are due to incidents where mortgage brokers in Australia (new citizens or PR) who were originally from China have be alleged to have helped countless Chinese nationals with Australian property loans with forged income documents. These black sheep caused Australian banks to increase their caution for all Australian property loans for non residents.
Singapore’s Love Affair with Australia
Singaporeans love the space the nature and the 4 seasons of Australia. Many Singaporeans further their studies in Australia or consider Australia as their second homes.
Borrowing in Australia is becoming more difficult, only the best credit profiles could borrow in Australia providing that they have residency status. Lending to non-residents have become as rare as the extinct dinosaur.
While Australia has started to tighten their lending, Singapore banks are still selectively lending to Australian property purchases for Singaporeans or Permanent residents who is a tax resident in Singapore.
With Australian banks tightening lending, some defaults and hardships may start to appear. However the problem is not yet severe as long as employment remains strong.
While many countries have started to tighten lending, Singapore banks have already tightened lending since 2013 based on MAS’ restrictions and have started to loosen up a bit. You can read about the chronology of property regulations here.
Perhaps Singapore may remain as a relative lending bright spot amidst tightening in countries such as Australia, Hong Kong, Malaysia, China, etc.
Find out more from a Mortgage Broker how to finance your properties in Singapore or for overseas properties. Do note, not exotic countries and destinations such as India, China, Europe (outside of London) are still not possible for now.