Chinese company offering high-risk mortgages for Chinese investors in Australia
A Chinese insurance company, Ping An, is reportedly offering its customers no-deposit home loans for properties in Melborne and the Gold Coast. For higher interest rates, Ping An offers to advance the initial 10% of the cost for an off-the-plan apartment, which the investor would have to pay back within two years. This comes despite regulators' efforts to cool Australia's housing markets, and numerous warnings that the market may have peaked. Indeed, regulators may find the news of Ping An's offer highly concerning, as the key market for Ping An are Chinese buyers who normally could not afford a deposit for a property in Australia; economists warn that this type of high-risk lending could lead to a crash in the future.

The aggressive lending practices being promoted by PingAn come amid efforts by the Australian Prudential Regulation Authority and the Reserve Bank of Australia to cool the overheated property market.

APRA has forced banks to tighten lending practices for property investors, including tougher income assessments and higher down-payment requirements.

Westpac minimum 20pc down

This has seen Westpac double the minimum down payment to 20 per cent for those investing in property.

The other big banks have instituted similar tightening measures, including higher interest rates for investors.

'The York', a large apartment development in West Brunswick is one of the developments being promoted by PingAn's no-deposit loan offer in Shanghai. Paul Jeffers

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The unusual intervention by APRA came after concerns that more relaxed lending practices were fuelling the east coast property market and had left the banks exposed to significant losses from a correction in the market.

But Australian regulators are powerless to prevent the aggressive lending practices of PingAn or other offshore banks.

The PingAn offering is also at odds with Chinese government efforts to stem capital outflows, as depreciation pressure on the yuan has increased in recent months as the economy slows.

Chinese buyers spent a record $12.4 billion on Australian residential property last financial year after buying around 15 per cent of all new homes, according to an analysis of government data by Credit Suisse.

The investment bank believes this proportion could rise to 25 per cent by 2020.

In recent years Chinese buyers have increasingly looked to Australia as the mainland property market wobbled and many believed the days of big capital gains were over. Australia is the third-most-popular destination for Chinese property buyers, after the United States and Canada.

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Scott Kirchner, a director of property agency Bella China, said the zero-deposit loans would mainly be taken up by speculators, rather than those wanting to buy property for their children attending university in Australia or for retirement.

"They are doing this [taking a zero-deposit loan] because they think they are going to get instant capital appreciation," he said. "I don't know why you would do it unless that was the assumption."

Lower-level buyer attraction

Mr Kirchner said it would also attract lower-level Chinese buyers who might borrow more money than they could afford, while it would also drive up prices.

"If you are opening up the market to another level of buyer then of course it will increase demand and that will flow on to prices," he said.

Mr Kirchner said there was also a risk for developers selling off-the-plan apartments, as some buyers would be tempted to walk away from their initial down payment if prices had not risen at the time of settlement.

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Mr Yuen of Austpac said it was early days for the zero-deposit loan, but so far there had been strong interest and if the trial was successful PingAn could roll it out more widely.

He said PingAn would typically lend Chinese investors the 30 per cent required for the down payment and the remainder would be financed by an Australian bank.

"The down payment will typically be secured against an apartment in China," he said.

Mr Yuen said there would be no requirement to disclose the PingAn loan to an Australian bank, which would hold the primary mortgage over the property.

Simon Moreira, a sales manager with R Corp, which is developing the West Brunswick apartments known as "The York", was unaware buyers were being offered zero-deposit loans. "I have got no idea about that," he said by phone from Melbourne.

Mr Moreira said around 80 properties in the 315-apartment development remained unsold and he would be in China shortly to continue the sales push.

PingAn is also offering the zero-down scheme for investors buying into the Ramada serviced apartments at Hope Island on the Gold Coast.