China breaks into broking

Mortgage Business witnessed the signing of an agreement between the Bank of China and mortgage aggregator AFG, which will see one of China’s biggest banks distribute home loans through the third-party channel.

AFG’s state manager for NSW and ACT, Stephen Doyle, said the aggregator has seen a significant increase within the overseas investment channel, predominantly from China.

“We see this trend continuing,” Mr Doyle said.

“The agreement with the Bank of China will create an important gateway into the Australian property market through a large Chinese banking institution,” he said.

The Chinese investor lending market is growing, with the latest figures revealing one in six new homes in the September quarter were sold to a foreign buyer.

The NAB Residential Property Survey (Q3 2014) found that foreign buyers accounted for 16.8 per cent of total demand for new developments.

NAB expects demand to increase further next year to 17.3 per cent.

The head of one of China’s leading websites for nationals looking for property overseas believes the agreement between AFG and the Bank of China could be the beginning of a new wave of Chinese banks chasing broker distribution.

“Chinese banks are becoming more sophisticated about operating overseas and have a powerful desire to expand in countries like Australia,” Juwai.com co-chief executive Andrew Taylor told Mortgage Business.

“You’ll see more Chinese banks doing the same in the coming 12 months, all things being equal, without a doubt,” Mr Taylor said.

However, it’s not just overseas investors that Chinese banks are targeting.

As an Australian registered bank with full AFS and Australian Credit Licences, the Bank of China has its sights set on the broader local market.

“Bank of China home loan products are highly competitive in terms of interest rates and fees in comparison with local lenders,” a Bank of China spokesperson said.

“In addition, with our considerable expertise in both the Australian and Chinese markets, we are able to meet customers’ broad range of financial needs and to provide differentiated services for both Australian and overseas customers,” the spokesperson continued.

The lender is also in the process of moving into the SME lending space where it will offer commercial and business loans.

Bank of China launched its own branded home loan products in 2006 and has witnessed solid loan portfolio growth since then.

Prior to yesterday’s announcement, this was achieved through a range of distribution channels including its own panel of mortgage referrers and brokers.

One distributor was Apple Home Loans lending manager, Nick Ni.

“We get a lot of demand from mainland Chinese wanting mortgages,” Mr Ni told Mortgage Business.

Apple Home Loans aggregates through AFG, but had written Bank of China mortgages prior to its agreement with the aggregator after the bank approached the broker to become a distributor.

“The two big challenges when working with overseas buyers in China are obtaining the lead and then verifying the borrower,” Mr Taylor says.

“If you can do that successfully, you can profit handsomely,” he says.

“Chinese overseas investment is set to increase substantially in the next few years as the country reduces its restrictions on capital outflows.

“Lenders and brokers who want to work with this market shouldn’t waste any time in establishing themselves or they risk missing out as the market grows."

One broker that has cornered the market is Ausin Finance, part of the Ausin Group of companies.

The multi-service business set up shop five years ago to sell Australian property to mainland Chinese investors and now employs a total of 330 staff: 280 across China and 50 in Sydney and Melbourne.

Speaking to Mortgage Business, Ausin Group general manager Joseph Zaja says Chinese demand for Australian property is only getting stronger.

“In the last year we have written about $250 million in loans,” Mr Zaja says.

“Next calendar year we are on track to write $500 million,” he says.

According to a recent Bloomberg report, close to a third of the home loans written last month by Macquarie Group were to Chinese investors.

Meanwhile, Yellow Brick Road lent $320 million to Chinese investors out of a total $1.1 billion in disbursements last month, according to YBR executive chairman Mark Bouris.

The proportion of Chinese borrowers has doubled in the past year, Mr Bouris says.

"The foreign investment loans have been a feature in the past seven to eight months," he says.

"It's a big ratio at the moment and we get them verified in China with facilities we have. They are supporting new developments."

Mr Bouris says that demand from offshore buyers is good for the Australian economy, contributing to a housing boom that is creating jobs.

Mr Taylor says the biggest opportunity for financial institutions lies beyond mortgages.

“You really make money when you serve them with the whole suite of financial and wealth management products,” he says.

“Many Chinese are eager to diversify their investments and investment advice to new sources outside of China.

“They look to Australia and a natural destination for their money."

In May, Mortgage Business reported that Juwai.com had entered into an exclusive agreement to provide mainland Chinese mortgage leads to an Australian lender.

The website hosts 1.5 million visitors per month, 82 per cent of them from mainland China.