When Lenders Think Globally

Posted: May 27, 2014 in Mortgage Information

Some jumbo lenders are targeting a new wave of luxury-home shoppers in the U.S.—buyers from Asia.

Global bank HSBC found in a 2013 survey of its affluent customers in Asian countries that more than one-third owned a property abroad, with the U.S. being one of the top destinations. The survey found that the largest proportions of Asian home buyers for U.S. properties were in China, Taiwan, India and Indonesia.

Many Asian buyers for luxury U.S. homes pay all cash, but more are seeking mortgage financing as the market swings from the superrich to the affluent, says Ryan Gonsalves, HSBC’s head of global mortgage proposition. An estimated one-third of HSBC’s U.S. jumbo-mortgage lending—loans above $417,000 in most U.S. markets and $625,500 in some high-price areas like New York and San Francisco—goes to foreign nationals, he says.

Down-payment requirements for foreign nationals at HSBC range from 20%—similar to jumbo mortgages for U.S. citizens—to 50%, depending on the credit-risk profile and home location, Mr. Gonsalves says.

Interest from Asia in luxury New York City-area properties has been growing for the past five to six years, says Kathy Tsao, an associate broker with Douglas Elliman Real Estate. One reason, especially for Chinese buyers, is a desire for children to receive a U.S. college education, but many families plan years ahead, she adds.

Other motives include buying second homes, vacation homes and investment properties, she adds. Many affluent Chinese buyers own or are seeking to acquire multiple properties in the U.S. and other countries, with the U.K., Canada and Australia also popular destinations, Ms. Tsao says.

“They have an apartment in Manhattan and a house on Long Island or in Westchester County,” she says.

Lower prices in the U.S., favorable currency-exchange rates and overheated property markets in their home countries have increased the appeal of home-buying overseas for Asians, Mr. Gonsalves says. For example, in Hong Kong, luxury condos go for more than $4,100 a square foot, compared with $2,100-plus in Manhattan, according to Knight Frank’s Prime International Residential Index.

A 2013 report from the National Association of Realtors showed China ranked second, behind Canada, among countries of origin for foreign buyers of U.S. homes. Canada is expected to remain on top when new data are released this year, says NAR spokesman Walt Molony. But he says the gap between them appears to be narrowing, with Chinese buyers gaining in market share.

Many U.S. banks won’t lend to foreign nationals because borrowers may lack a U.S. credit score, and verifying income and assets across borders can be difficult.

But financing options are increasing to meet the rising demand, says David Adamo, chief executive of Stamford, Conn.-based Luxury Mortgage Corp., which serves the New York area.

Luxury Mortgage has issued jumbo mortgages to foreign borrowers who can document income and assets, such as people relocating to the U.S. to work, Mr. Adamo says. While some national lenders remain reluctant to issue jumbos to foreigners, more regional and commercial banks are willing to lend to well-documented home buyers, Mr. Adamo says. “Since these loans have a lower loan-to-value ratio and higher interest rates, regional banks find it very attractive to have some of these loans on their balance sheet,” he adds.

Other issues sometimes arise for newcomers to the U.S. housing market. Asian customers may not be accustomed to needing proof of financing when making an offer on a home, Mr. Gonsalves says. Sellers can request verification from a lender that a buyer’s payment will be received on time and for the right amount. “One of the big things we tell our Asian customers is to start to finance before they leave home,” he says.

Most borrowers from Asia prefer adjustable-rate mortgages because they don’t expect to be holding property for more than five years, Mr. Gonsalves says.

Loans by domestic lenders to non-U.S. citizens/residents typically have interest rates at least one-quarter of a percentage point higher than jumbo loans to U.S. citizens; they also typically require a bigger down payment, up to 35%-40%.

Here are other considerations for affluent borrowers from Asia and other countries.

Establishing credit: One reason affluent Asians may borrow is to help build a credit rating for children who plan to remain in the U.S. after their education is complete, Ms. Tsao says.

Additional hurdles: Asian buyers may face restrictions by their home country’s government on the amount of currency they can transfer quickly. An international lender may be able to assist with dealing with these restrictions. Some buyers may need to transfer funds years in advance.



Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s