Mortgage lender pulls out of market

Blue Lotus Loans, an entity backed by a consortium comprising global real estate investors and credit providers including KKR, non-bank lender Pepper and Oaktree Capital Management LP, has announced that it is no longer offering new residential mortgages.

The finance company previously provided mortgages to overseas investors (primarily those living in China), looking to purchase or refinance residential property in Sydney, Melbourne and Brisbane.

In an update on its website, the lender thanked its customers and the partners who had worked with it to date but confirmed that it would not be extending new residential mortgages as of 19 March.

In a statement, it said: “Blue Lotus will continue to settle loans for which it has issued final approval on or before 18 March 2019 and which proceed to settlement in accordance with such approval.

“Blue Lotus will otherwise not proceed with any other loan applications.”

KKR confirmed the wind-down of the Blue Lotus lending platform, adding: “Blue Lotus and its backers regret this outcome because of the significant time and effort committed to establishing the lending platform, but it is the right commercial decision at this time.”

Blue Lotus first entered the Australian mortgage market in March 2018 offering financing for Australian residential property to overseas buyers – with a specific focus on apartment buyers from China.

When the lender launched last year, it was said that it would “provide a real solution for credit-worthy international investors [looking] to settle on their pre-sale contracts to the ongoing benefit of Australia’s housing and construction industry”.

The launch came following a swathe of lenders, including the major banks, pulling back on lending to non-resident mortgagors for Australian residential property purchases.

Falling overseas buyer investment

According to the most recent Foreign Investment Review Board (FIRB) annual report, released last month, the value of approved residential real estate applications from overseas buyers declined by $17.5 billion in a year – from $30 billion in 2016-17 to $12.5 billion in 2017-18.

The FIRB suggested that several factors may have contributed to the decline, including “the fall in the number and the value of residential real estate approvals from 2016-17 to 2017-18 [and]... a drop-off in demand from overseas buyers”.

“Contacts have cited state taxes and foreign resident stamp duty increases, foreign investment application fees, tightening domestic credit and increased restrictions on capital transfers in home countries, as some of the factors dampening foreign demand,” the annual report states.

It added that 74 per cent of the $17.5 billion fall in overall residential real estate approvals can be attributed to a drop in new dwelling approvals, which were themselves impacted by a decline in approvals for new dwelling exemption certificates (NDECs) that allow developers to receive pre-approval for foreign persons to purchase new dwellings in a specified development (up to a cumulative total of $3 million per foreign person).

Part of the drop in NDEC values is because of the reduction to the maximum proportion of new dwellings in a development that foreign persons can acquire using the certificate. In the 2017-18 budget, a 50 per cent limit on the number of dwellings in a development that can be sold to foreign persons was introduced.

[Related: Pepper-backed offshore lender launches non-resident mortgages]