HKD denominated Loan for Aussie Property

[sonic]

Hey guys,

Haven't posted for a while I've moved to HK about 8 months ago. Its pretty interesting the HK Dollar is on a fixed exchange rate with the USD and thus because of the interest rate cuts I can basically get a loan for with NAB here in HK denominated in HKD at 3.5% for an aussie property.

Does anyknow of the tax deductiability of this loan for aussie tax? The way I see it because of the different 3.5% vs about 8% for aussie interest I"m better off refinancing and paying it off in HKD since my salary is USD. The obvious risk is if the currency moves but given the large differential in interest rates I"m willing to take this risk especially since I can use my salary to pay off my loan. Thoughts?

Cheers

Tim

 

[alexlee]

The interest rate differential is 4.5% or so. The USD/AUD exchange rate has ranged from below USD 0.50 to above USD 0.90 in the last 5 years or so. If the exchange rate moves against you (and if you can predict the rate you might as well trade currencies), it can move by a LOT more than 4.5%.
Alex

 

[redsquash]

The loan is no differnt from obtaining funds from Australia. The loan is tax deductible.

Given the US dollar is going down the toilet and the $A is quite strong now, this would actually a bad time to take a loan. You should have done this a year back. Just see where the dollar was 3 years ago! Amazing!

What happens in 3 years time if things go bad, you will have saved about $36000 on a $300,000 loan you may have won or lost on the exchange rate with the capital value of your house.
You may also have a margin call on the loan. The longer you work in Hongkong the less riskier your loan will be when you have to pay it out as ,on my figures you would be saving 12000 dollars a year.
After 5 years the savings are $60000 and if the the dollar has swung 20 % then you break even on a 300k loan.
Thats a big risk.......................you really need to have your head screwed on properly for this Investment. I doubt anyone , in the currency can really even give a reasonable answer. At best it will be a vague guess.

Go through prior posts of currency forums and just see how badly everyone has predicted where the Us dollar will be in 2008................they have been amazing in their errors with the yen/ $A. I haven't followed the US dollar so carefully but it will be similar.
NAB suck for foreign loans . If you go into the details of the loanI bet my XXXX you wont qualify.Try LlyodsTSB they are pretty flexible but offer a 60% LVR.........similar to NAB

 

[alexlee]

On top of that, you take the extra risk of the HKD being unpegged from the USD. I have no idea whether it's going to happen, but the pressure on the CNY must have an effect on the HKD eventually.
Alex

 

[sonic]

The interest rate differential is 4.5% or so. The USD/AUD exchange rate has ranged from below USD 0.50 to above USD 0.90 in the last 5 years or so. If the exchange rate moves against you (and if you can predict the rate you might as well trade currencies), it can move by a LOT more than 4.5%.
Alex

point taken but the reason i'm interested in doing this is because looking at a macro point of view i think AUD will continue to strengthen in the next few years given the china story.

also if the aud comes off i plan to pay off the mortgage within 5-10 years so u have it averaged down even if the currency falls.

 

[alexlee]

point taken but the reason i'm interested in doing this is because looking at a macro point of view i think AUD will continue to strengthen in the next few years given the china story.

If you're confident enough about the currencies, why not just trade currencies instead? Much more flexible and a lot easier to move in and out than just taking out a mortgage in HKD. For that matter, buy mining shares and Chinese shares. If you're using this to play the macro story, there are much more flexible ways of doing it than taking out a foreign currency mortgage.

What, in your view, will happen to the exchange rate if the US goes into recession? And China demands less resources from Oz?

To be honest, I look at professionals trade currencies every day, and they don't always get it right.
Alex