Foreign currency mortgages on Australian property

[Perp]

I remember boomtown (no longer around) and some others talked a couple of years ago about having their mortgages with foreign banks, in foreign currencies, for Australian property.

For example, I think he borrowed Singapore dollars to buy Aussie property, and as well as benefiting from Singapore's lower interest rates, you also benefit if the $A goes up relative to the foreign currency. (Though obviously there's also a risk that your debt goes up if the $A weakens, and you have to have a strategy for hedging that risk.)

Does anybody know which lenders, and in which countries/currencies, it's possible to borrow overseas for purchasing Australian property?

I know there are risks and I'm happy for that to be discussed, but preferably in another thread. In this thread, I'd like to try and focus on identifying what options exist for foreign currency mortgages on Aussie property.

 

[Ausprop]

i think the upshot was you needed an income derived in that foreign currency to service the debt e.g. an expat job

 

[Rolf Latham]

as ausprop said, they do wnat some hedge, St George used to have mainstream forex denominated loans as long as u were earning that currency, they killed the program.

The big 4 still will lend to expats in the local currency at local rates with some margin for risk with LVRs areound 70%, BUT with a margin call clause on value and forex movement

ta

rolf

 

[Spectre]

perp
Depends on the currency.

We've got a few JPY loans coming in very soon - here borrowers are ex-pats in Japan earning JPY so no hedge. Extremely high income earners as well.

If in AUD then in a few weeks CBA's rumoured to be increasing lvrs to 80% with possible LMI (source my BDM tonight). Most of the other lenders I've run across wont MI the deal and max lends 70-75%.

 

[Peter_Tersteeg]

The AUD is at record highs at the moment, so if you need to service the debt from AUD income (your own income or rent), you can probably afford to borrow quite a lot. If the AUD continues to increase the loan will become more affordable.

If the AUD drops then affordability would become more difficult.

 

[landlubber]

I wish !!

I've tried to do this with CBA Private Banking ( no such product unless you have income in SAME currency as you wish to borrow). I even offered to establish a separate term deposit to offset the fx risk .Still no go. I also tried a cold call on HSBC...same story. But boy this is attractive ! HSBC quoted me rates for USD "less than half a percent". Imagine what THAT would do to your world. Worth a little fx risk for that one mama ...but I cannot find a player . I'd move a couple of million to it if I could find it. Plus you have the US Fed doing everything they can to devalue the USD. Could be so beautiful.
LL

 

[Melbournian]

I remember boomtown (no longer around) and some others talked a couple of years ago about having their mortgages with foreign banks, in foreign currencies, for Australian property.

For example, I think he borrowed Singapore dollars to buy Aussie property, and as well as benefiting from Singapore's lower interest rates, you also benefit if the $A goes up relative to the foreign currency. (Though obviously there's also a risk that your debt goes up if the $A weakens, and you have to have a strategy for hedging that risk.)

Does anybody know which lenders, and in which countries/currencies, it's possible to borrow overseas for purchasing Australian property?

I know there are risks and I'm happy for that to be discussed, but preferably in another thread. In this thread, I'd like to try and focus on identifying what options exist for foreign currency mortgages on Aussie property.

Malaysia and singapore - i know people who do it . (Most banks do it there from the Citibanks to their local banks)

Only drawback is that they require some local collateral... but at rates like 2% in some banks beats 6.5 or 7% here. Also

You can obviuosly hedge your risk my puting some options if you're in it for the long term.

 

[Ocean Architect]

I've heard of this happenning also, with aussie expats in singapore borrowing at 1.8% to buy aussie property. With those figures, it would mean that the Aussie currency would have to rise by 200% before you found yourself in a cashflow bind, and even if you did, you could always cash out of your aussie property, repay your principal and have profit left over.

If someone can figure out how to do it without first moving to singapore (which I'd happily do in principle) let me know, we can get a share house

 

[Blacky]

OA - singapore have tightened their policies, so you now need to prove employment and an address in singapore to qualify for a bank account.

There is a risk with it, however, if you manage it correctly it works well. The exchange rate is actually working against you in the current market - not with you. I know this sounds backwards but long term....

Lets assume you currently have $1,000,000 in AUD debt. You wish to tranfer this to USD to benifit from the exchange rate. Lets assume it is currently USD$1.00/AUD1.00 (makes my maths easier).

So you refinance AUD$1mil into USD$1mil. You benifit from interest rates by (say) 5% (usd rate 3% aud rate 8%). This equals AUD$50,000 over 12 months.

at the end of 12 months the Aud has dropped to say AUD50c/$1USD

You now have $1mil USD debt at 3% ($30k/pa) but you need to pay AUD$60,000. Still a saving of AUD$30,000

However, at this point if you wish to repay the USD loan (using AUD) you need to come yo with AUD$2mil.

I have used an extreme example here - however, the AUD is at record highs. Will they stay like this forever? I personally dont think so.

If you only earn AUD then it is not ideal to have USD debt when the AUD is weak. However, if you earn USD you can remove the exchange rate risk, and actually benifit by transferring AUD to USD (cash and debt) by timing the markets.

Hope I have explained this clearly.

Cheers
Blacky

 

[Melbournian]

I've heard of this happenning also, with aussie expats in singapore borrowing at 1.8% to buy aussie property. With those figures, it would mean that the Aussie currency would have to rise by 200% before you found yourself in a cashflow bind, and even if you did, you could always cash out of your aussie property, repay your principal and have profit left over.

If someone can figure out how to do it without first moving to singapore (which I'd happily do in principle) let me know, we can get a share house

ocean you'll have to own a property (fully paid off) - in singapore and you can borrow based on that if you want to remain in australia. Otherwise, you could borrow only if you worked there or lived there.

My dad has an shoplot (in asia it's like 3 stories in some areas) which is refinance to buy in australia.

 

[joeExpat]

You can synthetically borrow in any currency you like using an FX carry trade to offset a normal Australian based loan. Oanda will generate an interest credit of 3.8,3.9,3.65% for long AUD vs. USD,JPY,GBP respectively, reducing your 7.2% Australian loan by this amount, e.g. a 500K AUDUSD carry trade will generate 19000 p.a.

Of course you need to sustain enough margin in the FX account in case the exchange rate moves against you. If AUDUSD went back to 0.97 from today it would need 50k to keep the account solvent.

 

[Intrinsic_Value]

approach some of the international private banks, it CAN be done. However you will need a reasonable sized asset portfolio (say equity of several million), you will also need to prove you are deemed a 'sophisticated investor', that way if you stuff up, you cant sue so easily as you are deemed to know what you are doing (ie you are not a retail investor anymore, for lending or anyother purposes)

but personally with the AU$ at these levels i think one would be crazy to initiate such a transaction.

 

[im sparticus]

You can synthetically borrow in any currency you like using an FX carry trade to offset a normal Australian based loan. Oanda will generate an interest credit of 3.8,3.9,3.65% for long AUD vs. USD,JPY,GBP respectively, reducing your 7.2% Australian loan by this amount, e.g. a 500K AUDUSD carry trade will generate 19000 p.a.

Of course you need to sustain enough margin in the FX account in case the exchange rate moves against you. If AUDUSD went back to 0.97 from today it would need 50k to keep the account solvent.

bravo, I really admire this type of thinking (seeing things for what they really are) though with those figures ide be looking at getting a real fx broker and have my trades make the interbank market.
sadly most will just see what your proposing as "far to risky" (sigh)