Bank of China Expects to Double Aussie Mortgage Business in 2 Years

Following soon after China’s landmark free trade agreement with Australia and riding an investment wave that is estimated to have Chinese investors purchasing $39 billion in Aussie homes, one of China’s biggest banks expects to double the number of mortgages it sells down under.

Bank of China, which is the country’s fourth biggest lender, already saw its holdings of Australian mortgages grow 13 percent in the last year, about the twice the growth rate of the overall home loan industry in Oz. According to an account in Bloomberg, the bank’s Aussie mortgage holdings totalled A$672 million ($574 million) by the end of September.

While Bank of China’s slice of the overall mortgage business in Australia remains small compared to the A$1.08 trillion ($923 million) in home loans held by the country’s three biggest mortgage lenders, the state-run institution’s management is hoping to leverage the Chinese home buying boom to grab a bigger chunk of the Aussie market.

“In the coming two years, I hope that we can double the amount” of mortgages that Bank of China currently has, Shanjun Hu, the lender’s head for Australia told Bloomberg. The bank currently has nine branches across four Australian cities and employs about 300 people.

Chinese Investors Becoming a Force in Australian Home Industry

A report released in August this year by Hong Kong-based securities house CLSA found that China is now the top source of foreign-capital investment in Australian real estate, and that trend appears to be accelerating in 2014. With China’s own real estate market cooling off, many wealthy individuals and corporations from the mainland have begun buying into the Aussie market.

Just in the last two weeks China’s Sunshine Insurance Group bought a 550 room hotel in Sydney for $401 million, and real estate developer Shimao Property – together with its billionaire founder – purchased a 28-storey office tower only 600 metres away for $339 million.

In a report earlier this year, Credit Suisse estimated that 12 percent of all new home sales in Australia – and up to 18 percent in Sydney — involve Chinese buyers. The investment bank predicted that Chinese would purchase $39.5 billion worth of Australian residential property over the next seven years.

Bank of China Playing Key Role in Outbound Investment

With many Chinese not accustomed to working with property consultants or lawyers, the country’s banks are leveraging their relationships with the nation’s wealthy to get involved in overseas deals.

Bank of China has already played a role in a number of large overseas asset purchases by Chinese corporations, and the expansion of its mortgage lending business into Australia appears to be a continuation of that role.

The bank was also caught playing a potentially less legitimate role in outbound investment this year when CCTV ran an expose of a gray-market overseas money transfer service run by Bank of China. The state-run broadcaster alleged that the bank’s secret Youhuitong transfer system was a money laundering operation for skirting China’s strict controls on foreign exchange and capital accounts.

Australia Becoming a Focus of Chinese Real Estate Demand

After nearly a decade and a half of continually rising real estate prices, Chinese have developed a taste for real estate purchases. While the first offshore targets for the mainlanders were Singapore and Hong Kong, following the imposition of government restrictions on non-resident purchases in those two cities, China’s newly wealthy quickly turned their attention to Australia.

The Aussie government is now said to be investigating the impact of Chinese buyers on the local real estate market and exploring the potential need for controls on non-resident purchases.