Chinese investors flock to non-banks

Commercial property funder Chifley Securities has seen dramatic growth in lending to Chinese property buyers and developers over the last two months, following the tightening of the major banks’ lending practices.

Chifley Securities has provided $65 million in commercial property development financing to Chinese investors since 30 June, compared with $35 million provided to them in the first six months of 2015.

The non-bank lender said the pick-up in demand from Chinese investors comes after major lenders began “knocking back” or “delaying loan approvals for new commercial and residential developments”.

“We are seeing strong growth in inquiry levels as the banks are tightening their policies and funding for new developments,” Chifley Securities’ director Joe Morello said.

“The banks’ moves have proved to be a boon for non-bank lenders as we are seeing strong deal flows amongst clients, who are financially strong with good projects, but have hit a brick wall with the major banks.

“We and other non-banks are filling the void with funding for largely Chinese families who want to build their land banks and develop small and large commercial and retail centres,” he said.

Last month the federal government responded to a parliamentary report into foreign investment in residential real estate.

Under the new regime, mortgage brokers and real estate agents who help overseas buyers flout foreign investment rules will face severe penalties under a tougher compliance regime.

The government has proposed civil penalties for mortgage brokers, property buyers, real estate agents and other third parties who “knowingly assist foreign investors to breach foreign investment rules”.

“Provisions currently exist under the Criminal Code for knowingly assisting another person to commit a criminal offence,” the government said.

As a result, NAB recently warned brokers about foreign investment.

Speaking at the NAB and Advantedge ‘Knowledge is Everything’ event in Sydney last month, NAB Broker general manager Steve Kane said “massive changes” in the Australian mortgage market mean brokers need to take special care with the loans they write for foreign property investors.

“It is very important that you understand, particularly in the Sydney market where you’ve got rapidly increasing investment lending and rapidly increasing property prices, that if you’re dealing in those markets, particularly around foreign investment, that you understand the rules and regulations,” he said.

“It is important because as the person involved in the transaction, it just doesn’t go to the bank or to the customer, it will come to you as well if you haven’t adhered to the rules and regulations that have already been in place, particularly around foreign investment and investing by foreign nationals.”

NAB-owned funder Advantedge scrapped its foreign investment offering earlier this month. The group also pulled its low-doc loans, giving the non-banks another free kick.

“It was a very significant part of our book a number of years ago and now it has dwindled to not very much at all,” Advantedge general manager Brett Halliwell told Mortgage Business.

“Brokers tend to perceive low-doc as something for the specialist lenders. They don’t see a low-doc product as something for a prime, mainstream lender.”

Chifley Securities expects the value of approved loans to exceed the $500 million mark for this calendar year.

The group’s initial lending pool has now grown to $700 million, with its high-net-worth individuals now achieving average annualised returns of over 11.5 per cent.

Industry figures are confident that offshore demand for Australian commercial property shows no signs of abating. 

Since 2013 two-thirds of offshore commercial real estate investment into Australia has come from APAC, according to CBA managing director and global head of real estate, institutional banking and markets, Graeme Ross. 

"Previously two-thirds came from outside APAC," he said. "The current wave of Asian investors includes private developers, investment managers, listed Asian REITs, state-owned enterprises and extremely wealthy individuals."

Mr Ross said much of the capital flowing into Australian commercial real estate markets is here for the longer term, attracted by the relative attractiveness of Australian real estate and our long-term economic prospects.