Melbourne-based private lender BC Securities has launched one of Australia's first 25-year foreign buyer mortgages for the settlement of apartment purchases, with support from Hong Kong-listed Far East Consortium.
Mega-developer FEC, which is building 2500 luxury apartments at West Side Place and the new Ritz-Carlton in Melbourne, will refer customers to BC, which has sourced more than $700 million to lend to overseas buyers.
BC secured a $500 million warehouse lending facility with a foreign investment bank and raised $215 million in a debenture issue.
"Our estimate is that there is significant un-met demand from non-residents of Australia for fair and equitable loan products to assist the settlement of their apartments, most which have been purchased off-the-plan," BC managing director David Hinde said.
West Side Place, 250 Spencer Street, Melbourne. Supplied
"Our internal estimate is that non-residents have committed to purchase up to $20 billion of Australian real estate and these settlement obligations will gradually fall due over the next 18 months."
Since the banks turned their backs on foreign buyers 18 months ago, the private lending sector has grown quickly to fill the gap, amid claims stranded foreign buyers could result in settlement defaults.
But most loans offered were stop-gap short-term loans of about three years with the aim of giving foreign buyers time to look for a mortgage.
"The emergence of a 25-year mortgage points to the sophistication and maturity of the private lending sector," one private lender said.
"Regardless of what APRA and the banks think, there are substantial number of institutions which will take on foreign buyers."
While banks were concerned with foreign buyers' ability to service their loans, Mr Hinde and other private lenders said many of their target borrowers had strong credit backgrounds, with some already settling purchases with cash.
"The borrower cohort we target can demonstrate a substantial equity commitment to their purchase," he said.
"We believe our borrowers are of the highest quality but because of their non-resident status have been unfairly labelled as risky or deemed too hard to deal with given their nationality."
The banks' departure has left a large volume of customers to private lenders to now profitably offer long-term mortgages at reasonable rates. BC will charge 6.8 to 7.8 per cent at a maximum loan-to-value ratio of 70 per cent.
"The gap is closing. It was wider to start with but the banks' absence had closed the gap," Mr Hinde said.
"Our target portfolio LVR is well under 65 per cent. We reward borrowers for choosing an LVR below 60 per cent with a 1 per cent reduction in the interest rate."
BC plans to issue about $2.5 billion in mortgages in the next three years and will consider lending towards non-Australian real estate.
"This is clearly an opportune time for a new entrant in the market and we are very pleased to now be in a position to provide confidence to our Australian purchasers that they will have access to fair and equitable loan products, regardless of their nationality," FEC Managing Director Chris Hoong said.
But sourcing the funding was not easy, Mr Hinde added. It took BC six months to close the deal.
Even private equity firms like Blackstone, KKR and Oaktree, which were mooted to issue mortgages have not released any products.
BC said it would exercise the same credit review of borrowers and would also consider commercial loans to developers transitioning to mortgages once their apartments have reached the settlement phase.
"BC Securities has established an initial $50 million in construction funds to focus on the opportunities in the house and land and townhouse markets and will look to expand its offering to apartment projects in select markets."
Read more: http://www.afr.com/real-estate/private-lender-bc-securities-launches-25year-mortgages-with-far-east-consortium-20171004-gytz8o#ixzz4uyYvhxxi