Why are foreign investors interested in Australian commercial property?

Australia has always been a popular place for foreign investors looking to invest in the property marketAustralia has always been a popular place for foreign investors looking to invest in the property market, particularly with Asian countries like China. The Foreign Investment Review Board (FIRB) found that Chinese buyers in Australia were approved to purchase $23.8bn of property in 2015-2016, an increase from $18.4bn in 2014-2015. Australia received the second largest share of outflowing capital from China after the United States.

Despite the regulatory restrictions, and the banks’ new curbs on lending to foreign property investors, many foreign investors remain undaunted when it comes to purchasing property in Australia.

Luckily for them, there are options outside of the banks to obtain finance for the purchase of property. While banks are primarily concerned with serviceability and proof of income, private mortgage lenders like Private Mortgages Australia approach the lending process quite differently. Usually the loan is secured by property equity so as long as a foreign borrower has property assets to use as collateral the lending process should go smoothly.

One space that is of particular interest to foreign investors is the commercial property market. There are many reasons for the growth in this sector, starting with the types of investors:

Two types of foreign investors

There are two main types of investors who are interested in Australian commercial property – corporate and institutional investors, or high net worth individuals. Each of these investors has different motivations for choosing to invest in Australia, as well as a varied perspective on what they hope to achieve from their investment.

Corporate or institutional investors choose to invest offshore for two main reasons. The first is the mandate to deploy large funds, and with many domestic markets slowing, this has driven them to look overseas. The second is to keep their investment assets diverse and spread out over markets and cities that are seen to be well supported by demand, with survival possible even in the event of a global downturn. These markets mainly include Australia, the USA and the UK. Further to that, the top tier cities are seen as the lowest risk and best understood and therefore are the main focal point of investment. These cities include San Francisco, New York, London, Sydney and Melbourne.

The second type of investors – those with a high net worth – are commonly seen to be motivated to invest for migration purposes. As with corporate investors, the places high net worth investors choose to invest are within the tier one cities. The reason for this is mainly due to the cycle of popularity of these cities. Investors with a high net worth choose to migrate to these regions, driving corporate investors to strategically target these cities as their buyers are planning on moving there.

Getting a piece of the foreign pie

With continued interest in Australia from foreign investors, brokers have an opportunity to assist them in accessing funding for property purchases. According to Juwai.com’s March Chinese Consumer Survey, 25% of respondents cited financing or transferring money to pay for overseas property as being difficult. By working with non-bank lenders like PMA, brokers can help foreign clients access cost-effective loans with quick turn-arounds and in the meantime earn a slice of the lucrative foreign investor pie.

Private Mortgages Australia is able to lend to foreign investors when they are borrowing using an established Australian company.

PMA doubles yearly loan volume

Private Mortgages Australia doubles loan book Specialist commercial lender Private Mortgages Australia (PMA) has celebrated three years in business by doubling its volume of newly settled loans over the past financial year.

PMA managing director Tony Barbone said the firm’s success was a result of an increase in small-to-medium businesses needing alternatives to the banks.

“We’ve had so many brokers and referrers come to us with clients who have been turned down by the banks. While serviceability is the greatest concern for banks, we are primarily focussed on securing the loan using property equity which allows us to be a lot more flexible.”

While Barbone was reluctant to mention the specific size of PMA’s loan book, it had increased by 151% in its second year and then a further 115% in its third, most recent year, he told Australian Broker. PMA was first established in 2014.

“We’re so impressed that we’ve been able to maintain this growth and double our loan volume year on year. We definitely have our brokers and referrers to thank for this.”

Barbone said he had also noticed an increase in the number of brokers diversifying into the commercial lending sector.

“It’s great that brokers are starting to see the benefits of working with small-to-medium businesses as there are so many who struggle to access funding when it is readily available from non-bank lenders.”

PMA currently has over 3,000 brokers in its database with an increasing number referring commercial loans to the lender, Barbone said.

“We’ve found that educating brokers about commercial loans via our regular webinars has helped us continually grow the number of referrers that come us.”

The directors of PMA expect a further 50% increase in the number of settled loans in the coming financial year.

The firm has recently focused on reducing channel conflict by bringing in ‘subsequent referral fees’ to referrer clients who approach PMA directly for additional loans. The firm has also amended its Referrer Rewards Program to make obtaining rewards simpler when referrers introduce clients to the lender.

“We have now become ‘channel agnostic’ whereby a borrower pays the same approval fee if they come direct to us or through a broker. We also allow our brokers to add a service fee or mandate,” Barbone said.

“We have also added a new policy whereby if a broker sends us a client, that client takes out a loan and then that same client comes back to us directly for another loan we will still pay the broker a referral fee.”

It’s important to respect the fact that these individuals are all broker clients, he added, especially since more than 90% of PMA’s loans come from the third party channel.

Posted on Australian Broker