Overseas properties - Finance implications

Hi all,

I'm looking at co-investing in a potential residential property in New Zealand. I'm wondering how it is usually financed and if I do invest in it, what's the impact on borrowing capacity to purchase a place in Australia.

1. Is it possible get a loan from Australia to purchase NZ property or is it usually a loan from NZ bank?
2. What are the future implications in obtaining a mortgage for another property in Australia? Any difference to the usual situation if the NZ property was an Australian property instead.
   • Assume Australian banks will ask about overseas loans as part of their loan application.
     
   • Serviceability impact, does Australian bank take into account rent from NZ property and 100% of the rent or a only a portion?
   • How much expenses is assumed for the NZ property?
   • Implications of this being a co-investment? Is it better to have a separate loan for myself rather than be part of one big loan in terms of future obtaining future financing. I'm sure there are tax and asset protection issues too.

Thanks

 

You will have to borrow in the country of the property if using that as security.

You must still declare overseas loans and income on Australian applications.

 

How do overseas loans impact serviceability? Are they assessed at the same domestic OFI rates or higher?

 

I believe it is possible to get a loan for an NZ property from an Australian lender, but it's quite impractical. Much simpler and less risky to get finance in the country you're purchasing.

As a general note, people investing in the US or UK (where it's almost impossible for a foreigner to get a loan) usually do a massive equity release in their Australian portfolio then pay cash for the overseas property.


Australian lenders don't specifically ask for disclosure of overseas assets and liabilities, they just ask for disclosure of all assets and liabilities.

In many cases, when you consider currency conversion policies, interest rates, holding costs, the assessment of an overseas portfolio can be disastrous for your servicing.

For example the bank may have difficulty verifying the overseas rental income so they may assume it doesn't exist. If you disclose a loan, they'll load it on Australian interest rates of 7%+ even if you're only paying 1%. Throw in 20% buffers on currency conversions and an overseas cash cow would be considered to be massively cash flow negative without any gearing benefits.

If you've got debt overseas, in most cases an overseas portfolio doesn't help at all when buying property here, the effect can be completely opposite.

Unless it's disclosed either directly or via documentation supplied, Australian lenders will find it very difficult to verify most overseas properties or the income and debt associated with them.

 

Possibly silly question: is interest on overseas IP loans tax-deductible?

 

They'll often apply the Australian assessment rate and add a 20% loading for currency conversion. The net assessment rate might be as high as 9% under these conditions.

They'll also only take 80% of the rental income, then shade it by a further 20% for currency conversion. Net effect could be they'll only use 64% of the rental income.

A lot of this can come down to how the application is disclosed and structured. This can depend on what paperwork is available to support the application and clued in the person submitting the application is.

@chylld negative gearing isn't included for overseas IPs.

 

Thanks Peter, I assume 100% of domestic IP income is assessed?

 

same as for local property - yes could ce

 

Thanks guys for the responses.