Discussion in 'Investing Strategies' started by Christine, 8th May, 2011.
Hi All, How can I access overseas loans to refinance my property investments in Aus?
If this were easy (and free from risk) everyone would be doing it. The issue is finding an overseas bank that will take your Australian home as security (and your Australian income as proff of servicability). This is not possible as the overseas bank will be aware that they (and you) are taking a currency risk. i.e if the Australian dollar decreases relative to the currency in which you have the loan then your capacity to afford your loan repayments in Aussie dollars reduces as does the banks security.
If you are wealthy, theoretically they may give you an unsecured loan at a slightly higher interest rate but again the currency risk makes this a foolish thing to do.
You will find as overseas rates increase, the Aussie dollar will likely (but not necessarily) fall relative to these currencies hence everything comes back into balance over time when you consider currency overseas rates are not really as attractive as they seem.
Thanks. I was thinking more along the lines of borrowing for a fixed term at a fixed interest rate with the hope that one could reap the benefits for a few years and then pay back.
Agree with Dolfnwise. Finding overseas money to purchase property in Australia can be difficult.
It's a little easier when you're a citizen of a country where the overseas bank has a foreign investment product and policy that includes Australia property.
For example, Citibank have a product for Singaporean citizens allowing them to buy property in Australia (and a handful of other countries). Their rates are a composition of a market rate + Sibor, which adds up to a modest 2.15% (not bad compared to our current Aussie variable rate).
A few things to consider. What happens as exchange rates fluctuate? Fortunately, for that particular loan product, there's only a concern when the value goes below the 70% LVR in the target country (Australia in this case). In otherwords, this particular arrangement ignores fluctuations in the currency exchange rate between Australia and Singapore.
Having said that, there can be issues between securing a property and getting loan approval. There are insurance products that can solve that, but it cost a few $$.
The key issue is as Dolphinwise suggests. If you're earning an income in $AUD and need to pay your loan in $SGD (or any overseas currency for that matter), currency fluctuations could hurt later down the track with repayments and how financial institutions interpret your position when you take on a subsequent IP.
This example relates to Singapore, but there are many other countries with similar product offerings.
If you fit that category, FIRB constraints may also be a concern for you (unless you hold dual citizenship, but that's pretty rare for Singaporean folk).
If you're an Australian citizen... getting your hands on overseas $$ is not so easy.
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