Another bank restricts lending to foreign invetsors.

Is this the end of foreign investors buying Australian property?

Now National Australia Bank will join the other major banks and tighten lending criteria for Chinese buyers.

Earlier this week Westpac Bank and the other banks in it’s group — St George Bank, Bank of Melbourne and Bank SA, stopped lending to all foreign residential property buyers.

In March ANZ Banking Group closed the door on some buyers wanting to invest in Australian real estate using overseas funds and also announced tougher rules for other borrowers to prevent fraud and money laundering.

Our fourth big bank, Commonwealth Bank, has also cracked down on lending to foreign buyers by tightening rules on the source of income and increasing size of deposits.

The reluctance around lending to foreign buyers, who are largely from mainland China, is partly due to the difficulty of verifying their identity, income and assets.

There are already many stories circulating of fraudulent mortgage applications from overseas investors overstating their income and assets.

Another issue is that some Chinese buyers were effectively paying no deposit payment on Australian property purchases as they were borrowing the deposit from a Chinese bank, before seeking a loan for the remainder from an Australian lender.

Some real concerns

These moves have caused real concern in the property industry raising fears of a substantial price correction in the off the plan apartment markets in our CBD’s.

As foreign investors can’t purchase established properties most bought off the plan properties underpinning many of the new developments we can see in the CBD’s of Melbourne Sydney and Brisbane. [adrotate group=”8"]

Some have put down 20% deposit, others a little more hoping to obtain funding for the balance of their purchase on completion of the project

Unfortunately many of these investors will be disappointed as most local banks will now no longer lend them funds to complete their purchase, while other investors will find the value of their properties on completion will be significantly less than the contract price.

This means they will have to come up with more funds as banks will only lend on valuations, not on contract prices.

This will be exacerbated by the fact that some investors will have to offload their properties at any price they can get achieve and this will devalue the other properties in their complex.

Some will hope to walk away from their contracts and lose their deposit, but developers will have the right to on sell the units and sue the defaulting purchaser at for their loss.

Coupled with the current looming oversupply of inner-city apartments, times look tough for the sugar properties and it is likely that those who purchased off the plan will see no capital growth or rental growth for over a decade.

In my mind the decline in foreign buyer activity is likely to cause a significant downturn in the off the plan sub segment of our capital city property markets.

Originally published at Property Update.