Non-bank stops lending for developments popular with overseas investors

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One non-bank lender has made the decision that it will no longer provide loans for the purchase of properties in what it calls “vertically integrated” developments.

Speaking to Australian Broker earlier this week, Firstmac chief financial officer James Austin said the non-bank lender has decided not to lend to the schemes as they are too “high risk.”

“What we are targeting is vertically integrated groups that have the same builder, lender, solicitor and marketing outset,” Austin told Australian Broker.

“I call them vertically integrated groups because they are one consortium who are developing the property and who own and are selling the property. They are using the same solicitors and then are marketing the properties offshore. So it is this concentration which is quite a high risk form of lending,” he said.

While the vertically integrated developments are popular with overseas investors, especially those from China, Austin said the lender's decision was not driven by that.

“As we saw some of these types of loans coming into our pipeline, we sent a note out to our brokers saying that we would not do this type of business. It just so happened that the particular example we had at the time involved Chinese investors,” he said.

“But it is not the nationality or the borrower we are targeting – it is often the offshore resident which is susceptible to this marketing scheme and form –it is that type of vertically integrated type of operation.”

Austin also said there is some concern about lending for off-the-plan purchases in general.

“I think the market is quite volatile right now given all the changes and development going on and I just think that off-the-plan is potentially a very problematic area,” he said.

“With funding being restricted across the industry, to investment particularly, I think that off-the-plan could become a very dangerous area. I think that there is a lot of development going on – both in Melbourne and in Brisbane – and I think that when they come to deliver it may be not a good place to be.”


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