NOTE: There have been major changes in international financing of Niseko real estate since this article was written. Please seek the latest information.
By Ruskin McLennan
Managing director of Niseko Property
THE Niseko property market continues to mature. Last year saw unprecedented development in the Niseko area with more to come next year, despite the global slowdown. This market is being supported by the first tailor-made financial product.
In early 2008 The Commonwealth Bank of Australia visited Niseko to research the property market in depth. Previously, Niseko property purchases were financed with cash and/or using 100 per cent equity from overseas property. Commonwealth Bank spent a lot of time here talking to local agents and developers and studied sales over the past three years. In July this year the Commonwealth Bank introduced the Japanese Snowfield Loan.
This loan product is specifically targeted at Niseko investors and for the first time in Niseko’s short history, investors are able to use their Niseko property as collateral. This loan currently only applies to houses and apartments and the collateral is 50 per cent of the market value. If you wish to finance at a level greater than 50 per cent you can use collateral in the form of property or shares. This product has been well received and the Commonwealth Bank will dominate the market with this product in 2009.
The Commonwealth Bank now provides financing based on interest rates of between 2.75 per cent and 3 per cent. The interest rates are tied to the LIBOR rate. The loan is available only in principle and interest repayments. The maximum loan period is 25 years. It can be denominated in the major international and Asian currencies, and can be switched to any of the currencies above which may assist you in hedging the loan.
The Commonwealth Bank has branch offices in HK and Singapore, which may assist you with the loan, and they may allow you to use property in these countries as collateral.
Risk and reward
The risk of international finance is that the currency may move against you. Before making any investment you must have a strong understanding of the risks. A sudden movement in currency may benefit you, however, it may also increase your repayments and the collateral required. The ability to switch the loan may assist you in hedging your investment, but it is a sophisticated financial instrument.
Other loan companies
Interestingly, late last year a number of financing companies were looking at options in Niseko. The National Australia Bank (NAB) had been promising for some time that they would enter the market. The bank introduced a loan in the summer of 2008 at rates 1 per cent below the Commonwealth Bank. NAB withdrew the loan product after the credit crisis in October this year. While this upset a few clients who were progressing their loan applications with the NAB, it had one positive effect. The Commonwealth Bank dropped its rates by 1 per cent to match the NAB.
ANZ Bank is also providing loans to Japan-based expats but you must have a substantial Japanese income, which disqualifies most Niseko investors. As Niseko evolves and the property market becomes global we anticipate that other major banks will enter the market. The major banks may be coerced into the market by the requests of their major clients.
It is still difficult for foreigners to obtain financing through a Japanese bank, particularly without permanent residency. The Japanese banks are unlikely to enter the market.
Financing will help to underpin the market by allowing people to take a longer term approach to the Niseko market. It will allow more people to enter the market. At interest rates of 2-3 per cent, well-managed properties in Niseko will be cashflow positive from day one. This will allow wise investors to pick up some great assets this winter at great prices. It also allows investors to negotiate a great deal on a property now, pay a small deposit and finance the balance when final payment is due in 2009 or 2010.