ME Bank follows similar bans by the nation's five largest banks, including Commonwealth Bank of Australia, which is responsible for one-in-every-four mortgages.

Other lenders, including Macquarie and AMP, have slashed the use of Chinese yuan and black-banned other Asian currencies for deposits and repayments in proscribed leading currencies, such as the Euro and US dollar.

CBRE managing director of residential projects, David Milton said problems loomed for Chinese buyers, who have invested into a Foreign Investment Review Board-approved development as "Australian banks specifically want to see an onshore source of income to service the loans"

"Many Chinese buyers don't have this," Mr Milton said in comments reported in a research note from broker CLSA. CBRE markets more than 60 per cent of Sydney's new apartment projects.

ME Bank is the latest to ban foreign property borrowers. Luis Enrique Ascui

"In the near term, for projects settling in the next 3-6 months, it's going to create a potential problem for FIRB buyers, who were banking on the mortgage from an Australian bank to settle their purchase.

"The large and lower quality projects, which are primarily FIRB investor product, will suffer in the immediate term ... a lot of the secondary product isn't suited to local owner-occupiers or investors."

But Mr Milton said sales remain strong for high quality product, noting the recent sell-out of Lendlease's Darling Square apartments in less than four hours.


Off-the-plan property fundamentals are extremely strong, Mr Milton stressed, but said in the "immediate term" the FIRB financing issue would need to be resolved and there will be softening in demand for secondary stock.

Only so much a broker can do

Peter White, chief executive of the Mortgage Brokers Association, which represents more than 8000 mortgage brokers who advise property buyers, said the "amount of lender contraction from foreign buyer market is a serious concern".

Mr White, who this week was in talks with industry and regulators about commission payments to brokers, blames the banks' failure to monitor lending for the growing problem.

"There is only so much a broker can do to check on the accuracy of an application," he said.

Major banks banned foreign borrowers after detecting potentially fraudulent applications that included documents with missing pages and income and employment statements from overseas' employers that could not be located.

Fraudulent applications using Bank of China letterhead and bank statements are being sold for $250, according to industry sources.

Last week Firstmac, a Brisbane-based non-bank lender, withdrew lending to purchasers of high-rise apartments because of concerns about over-supply and falling demand.

The lender, which also raises most of its funds from overseas investors, warned about growing investor concern about a local property market bubble.