Borrowing to buy abroad

OVERSEAS property investments are enjoying an unprecedented level of success in Hong Kong. Expatriates purchasing properties in their home countries, intending migrants and investors wanting to take advantage of good buying opportunities have all added to the wave of buyers. Hong Kong banks are vying to meet their borrowing needs with a variety of mortgage services. As buyer demand for overseas property increases, so does the line-up of facilities available, and about 30 banks and other loan institutions now provide mortgages for overseas properties. To make informed decisions, borrowers need answers to a host of questions, including: Should the loan be taken out in Hong Kong dollars? What are the foreign exchange risks and how will the loan be serviced if you leave Hong Kong? For most people, buying a property is still their largest personal investment commitment and the associated financing arrangement is likely to be their largest single exposure to debt. To meet demand for overseas mortgages, some banks have extended existing services, some have introduced tailor-made mortgage facilities and others have used their international networks to service local buyers. For example, Hongkong Bank, which does not directly handle loans for overseas properties, refers applications from clients in Hong Kong to a branch of the bank in the country where the property is located. Because it does not assess loan requests or get directly involved in lending, a bank spokesman said the bank did not have one mortgage product or service that it could promote for borrowers in Hong Kong. ''The mortgage packages used by our overseas branches are passed directly to us, so we are not in a position to modify them,'' he said. The Hongkong Bank network covers Canada, Australia, New Zealand, Singapore and Britain. Regardless of where the property is located, it is almost impossible to avoid a foreign exchange risk when buying overseas, according to Westpac Bank manager Peter Chan. ''You can't totally eliminate a currency exchange risk if you are borrowing currency outside of a market you intend to purchase in,'' he said. When you borrow Hong Kong dollars to pay for an overseas property, the loan is calculated at the exchange rate on the day that finance approval is granted. Monthly repayments made in Hong Kong dollars are also subject to exchange rate fluctuations. When borrowing, Mr Chan said it was always an advantage to match your source of income or revenue with the debt. Loans issued by Westpac for Australian properties can be issued in either Australian, Hong Kong or US dollars. Buyers who move to Australia before the loan has been paid off can have the loan principal converted back to the domestic currency. The Royal Bank of Canada concentrates solely on mortgages for Canadian properties. Loan applications are arranged in Hong Kong and then referred to a branch of the bank near the property. Canada banking services manager Patty Lam said the bulk of loans issued by the bank were in Canadian dollars. Repayments must be made in Canadian dollars via a remittance or money transfer each month. To cut the cost of monthly transfers, home buyers frequently make bulk payments, combining several months' mortgage payments in one remittance. This system of repayment can also be used to take advantage of favourable exchange rates. The bank issues a smaller number of its loans in Hong Kong dollars. Standard Chartered Bank also refers applications for overseas mortgages to its overseas branches and customers make repayments by remittance. Hill Samuel issues loans in either Hong Kong or US dollars, or in the currency of the country serviced by the overseas mortgage. Countries covered include Australia, Canada, the United States, Britain, Portugal, New Zealand and Singapore. In the US property market, Hill Samuel will lend for mortgages in 14 states. According to Barry Lea, the bank's regional director of financial services, Hill Samuel is the only lending institution in Hong Kong that will process a mortgage application fora US property locally. All aspects of loan applications are processed in Hong Kong except for the valuation and conveyancing work. The Bank of America has a loan service specialising in residential properties in California for Hong Kong Chinese buyers who would otherwise have difficulty obtaining a mortgage. Bank of America (Asia) executive vice-president Sam Tsien said the California branches would accept credit history and employment and resident status assessments made by the bank's Hong Kong headquarters.