Wealthy private investors and rich-listers are looking to establish a fund that will lend to foreign apartment buyers left stranded by banks' lending bans, but only on a first-mortgage basis.
"We expect some high level of angst among the developers going through their settlements with high exposure to foreign buyers," said David Farquhar, associate director of private company Seymour Group, which plans to establish such a fund. "We would only look at first-mortgage lending—for any form of property—where the risks are low."
Banks are pulling out lending to both apartment investors and developers in the face of new development and rising building costs. Foreign buyers are also slapped with increased state taxes. Offshore and local investors are also experiencing a funding gap as banks revalue off-the-plan units approaching settlement, leaving many below their purchase price.
According to Deloitte Real Estate partner Damian Winterburn, he is aware of at least two separate funds established within the past month by wealthy private investors to fill the funding gap. These funds were targeting foreign buyers looking to borrow 60 to 70 per cent of the purchase price. They were charging between 8 and 12 per cent.
Former Macquarie Group property head Bill Moss expects Asian banks to bridge the funding gap in Australia through subprime lending. However, he laments that the timing might be a little too late.
"This has been done too late in the cycle; it should have been done three years ago," he said. "At some stage, there will be a problem in the apartment market. There is the risk of a crash and the construction of new buildings will stop."
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