G'day people! Just thought I would make an introduction of myself first, I'm 24 yrs old, currently working in the mining industry, have a couple of dollars in some managed funds (which aren't doing so well atm) and looking to invest in real estate in the near future. Here goes my question: My parents live in another country but they have investment properties all around Australia, they told me they were getting home loan interest rates of 0.5-1% from Japan with a Commonwealth or ANZ offshore bank account. Can we as citizens/residents of Australia also do this? Can anyone care to explain how they are getting such rates while we are stuck with 8-9% home loans from our local banks? Regards, jytan
Hi JYTan, You'd have to ask a Japanese bank if they are willing to lend you money. Different economies, Japan has "technically" been in recession for at least a decade (and they still have cool stuff like Sony!) so interest rates are extremely low to stimulate the economy (to get people spending). From memory the official Bank of Japan (Like our RBA) rate is 0.25% pa! If you can't get a bank loan from Japan (which you might not be able to do) you can ask your parents to get a loan in their name and you can pay them 2% interest (beats the Aussie loan rates by miles!). Just don't forget about exchange rate risk, that could do some nasty things! Cheers, Dan PS Before making a tax decision speak to your accountant or tax adviser.
Thanks Dan, Just seems weird that they can buy houses in Australia with 0.5% interest rates while we are stuck with 8-9%, thanks for the idea, maybe i'll ask them to get a loan for me and put the property in their name instead of mine.
Hi JYtan, you ask an interesting question, i to am wondering if it is an option to get an offshore loan at buggerall % rate to counter act our own banks ripping us off. Even with the currency rate we would have to be in front wouldnt we....i wonder if anybody in Australia deals with this sort of issue. Cheers TC
Have a look at a chart like this: AUD/JPY Currency Conversion Chart - Yahoo!7 Finance What it means is that at various points in the last 5 years, you might have used offshore borrowing to, for example, borrow A$400k and ended up actually owing $736k. Or, if the timing had worked out differently, ended up actually owing $260k. Obviously huge lurches such as these way out-weigh the difference of 6 or 7% per year. So it comes down to risk. Borrowing $400k and having to pay back $260k - whoo hoo ! Borrowing $400k and having to pay back $736k - D'oh ! The point is nobody (*nobody*) knows for sure what the future holds, because if they did, they'd be infinitely rich. Exchange rate movements can be full of surprises, and it may work out in your favour, or against you, or about even. But the swings can be large. A conservative but reliable approach is to have your debts in the currency in which your investments earn, otherwise you have adopted the role of a currency speculator, which may or may not have been your original intention.
Hi jytan My experience as an expat allowed me to get a USD denominated loan from one of the Australian Big 4 Banks but this was only allowed if my income was paid in USD's (which it was). This effectively shielded me from exchange rate risk. If your income is earned in AUD's, I don't know of an Australian or US Lender that will give you a USD home loan, for an Australian property. Cheers, Paul Paul & Karen Dobson - Vendor Financiers - Ph: 0447 973 235 Welcome to the JV Property Partners Introduction | Vendor Finance Institute
Westpac and the Comm got in all sorts of trouble some years ago for actively encouraging people to take foreign currency loans: http://fsi.treasury.gov.au/content/downloads/PubSubs/000093b.pdf
