No-deposit home loans for real estate?

New aggressive lending practices overseas are providing foreign buyers with zero-deposit home loans to buy properties in Australia, and the practice may find its way to Canadian shores soon.

The privately owned Ping An Insurance, based in China, is offering the zero-deposit home loans over Australian apartments to Chinese investors, who will be charged an annual interest rate of 14%.

Eddie Yuen, the Shanghai-based manager of property agency Austpac, which is promoting the scheme to clients, said the loan had a two-year term and was to fund the initial 10% down payment for an off-the-plan apartment.

“You can walk into one of our seminars without a dollar in your pocket and still buy an Australian property,” he told The Australian Financial Review.

Yuen said at the time of settlement Ping An would extend about 30% of the property’s value to the borrower, who would then seek the remaining 70% from an Australian bank.

The aggressive lending practices of Ping An are at odds with efforts by Australian regulators to tighten lending standards and cool the property market, very similar to our housing market issues in Canada.

Justin Fabo, a senior economist at ANZ, said zero deposit loans at such a high interest rate would encourage speculation.

“If you are taking out such a loan at that interest rate [14%] you are expecting a large capital gain,” he said.

Fabo added that regulators could be forced to limit such purchases through foreign buying restrictions if the lending practices became more widespread, something that was also much discussed in the lead up to the federal election earlier this month.

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