"I bought an off-the-plan apartment and now the settlement date is getting close. My agent and loan planner told me that banks now are not accepting loan applications with overseas income," asked one poster on Tigtag, a popular migration forum with an active property investment discussion thread. Companies targeting offshore buyers are seen as higher risk. Credit:5iphoto "They also say I need to make a face-to-face interview if I apply for loan. I'm now back in China so I'll have to authorise an agent to manage the handover [in Australia]. So they suggest I sell the property before settlement. Is this right?" Rules tighten The Australian Taxation Office on Thursday unveiled new legislation which will require those who are considered foreign residents for tax purposes to pay 10 per cent withholding tax on properties worth more than $2 million. It follows recent changes targeting foreign buyers: proof of residency and citizenship will be required when purchasing property in Sydney, while higher stamp duty rates will apply to foreign buyers in Victoria.

Australian developers are tight-lipped about the potential impact bank and regulatory changes suggesting the crunch point will come in two or three months' time when a number of big city projects are due to settle and the impact becomes apparent. The headwinds facing the apartment sector are stronger in Victoria where the state government will also boost stamp duty surcharges on foreign buyers to 7 per cent and increase absentee owner land tax to 1.5 per cent. Chinese investors are invited to information sessions about investing in Australia. "Realistically we need another 2 or 3 months to see the impact," said one developer who did not want to be named. Development to slow

Property-focused private equity firm, Qualitas, said new starts on apartment construction would slow "substantially" in the medium-term as a result of banks and governments making it more difficult for overseas investors to purchase new property. Booths promoting Australian property at an international property fair in Beijing. Credit:5iphoto Looming constraints on foreign buyers could impact supply over the medium term, leading to price increases, Qualitas managing director Andrew Schwartz said. The proportion of foreign to local buyers has been steadily increasing over the last two years with developers taking advantage of demand to accelerate projects. It was now common for many projects to have 40 per cent of total buyers being foreign. Property in Canada is becoming more attractive ti Chinese investors. Credit:AP

"There are certainly unprecedented levels of new apartments coming into the main cities - particularly in pockets of Brisbane, Sydney and Melbourne. However, it's likely that any excess supply will be absorbed by the market over a short period of time, due to continued strong migration levels," Schwartz said. More change to come? Wang Peng, general manager of overseas-focused Chinese property group UNME, says the tightening of rules aimed at foreign buyers were being interpreted by Chinese buyers as a potential signal of more to come. He said the moves were seen as politically motivated as both federal and state governments seek to appease local buyers worried about the impact of foreign cash on housing affordability. The crackdown on loans substantiated by overseas income has the greatest potential to impact all but the wealthiest of Chinese buyers, says Wang, who owns investment properties in Australia himself. "When a downpayment has been raised and then loan restrictions are introduced, inevitably it will impact investment. Many of our customers are concerned about this issue," he says.

He says many buyers had bought off-the-plan properties but are now scrambling to find alternative loans before settlement, often forced to pay higher downpayments. "This is the most disadvantageous part to overseas investors. The impact is quite big and very direct." Echoes in Canada The impact of Chinese money on Sydney and Melbourne housing markets is mirrored in Vancouver, where intense public outcry has erupted against what many Canadians consider speculative real estate investment by wealthy Chinese which is contributing to inflated home prices and pricing out many local residents. "Moreover, there are some legal concerns about the origin of Chinese funds; protestations that nonresident, property-owning Chinese evade Canadian taxes; and allegations of empty investment homes exacerbating the housing crisis," said a report published by the Asia Society and Rosen Consulting Group this week.

It said the backlash to increased levels of investment in both Canada and Australia "whether warranted or not, has driven some Chinese investors to invest in the United States". But Wang noted that Chinese buyers already attracted to Australia likely had their heart set on the country because of personal connections there, whether through existing family, children attending Australian universities, or future plans to migrate. He said around 20 per cent of his clients were "pure investors" who would consider switching focus to entirely different countries which were more welcoming of their money. China tightens capital rules Chinese buyers are also being squeezed by regulatory tightening at home.

Capital controls in mainland China have long meant that each person is only allowed to move a maximum of $US50,000 a year out of the country. But those rules had been laxly enforced until recent months, with the central government urgently trying to combat an unprecedented rush of hot money flows out of the country, as investors fret over a downward trajectory on the yuan and the long-term health of a slowing Chinese economy. The hurdles now facing offshore buyers have heightened fears of settlement risk in apartment projects across Australia's capital cities as developers face the possibility foreign buyers might not be able to access funding from banks following a clampdown on lending by Commonwealth Bank of Australia, Westpac and other banks. Industry sources suggest the bank clampdown on foreign lending was prompted by a spate of bad loans originated through mortgage brokers in Sydney. Major developer Mirvac was recently downgraded because of similar settlement concerns.

Developments progressing There were no such settlement problems on a major 225-apartment project called The Bouverie in Melbourne's CBD recently completed by Qualitas and construction giant Grocon. "We experienced default rates of around 1.5 per cent among those who bought off the plan. That was true of both foreign and local buyers and is a positive result," Schwartz said. Colliers International's managing director of residential Tim Storey said the increased stamp duty surcharge due to be introduced in July in Victoria had prompted a "buying frenzy" beforehand. Hong Kong-based developer Far East Consortium has a major 1000-plus apartment project due to settle in the next few months.

Mr Storey said there was no history of settlement risk in any of the projects sold so far because loan to value ratios for foreign buyers were set below 70 per cent. Loading Overseas banks had been stepping in to fill the lending hole after Australia's big banks declared they would limit finance for foreign buyers, he said. "A lot of foreign banks have financed Australian product. HSBC, for example, will lend to Hong Kong buyers for Australian property. These overseas banks are very active anyway," Storey said.