Wealthy Chinese residents have been accused of using back-channels to move money out of the country, including into Australian property.

Wealthy Chinese residents have been accused of using back-channels to move money out of the country, including into Australian property. Photo: Rob Homer

The role of Australian banks in helping to fund foreign investment in real estate is coming under scrutiny, as politicians investigate overseas buyers' activity in the housing market.

The trend highlights the global pressure on banks to know more about their customers' financial dealings, amid allegations wealthy Chinese citizens are secretly transferring money into overseas property markets, including Australia's.

As foreign investment in housing surges and banks eye their cut, lenders' activities in relation to overseas buyers are being examined as part of a broader parliamentary inquiry into residential housing.

At hearings of the House of Representatives economics committee late last month, ANZ Bank and Macquarie Group were asked to provide details of how they were ensuring various foreign investment rules were followed.

However, responses from banks, published this month, highlight the limitations of what lenders currently know about foreign real estate investors.

Macquarie Group was asked what it did to make sure loan clients were not misusing the Significant Investor Visa and diverting the funds into property assets. Known as the "888" visa in reference to the lucky Chinese number, the visa fast tracks residency status for wealthy foreigners who invest at lease $5 million in bonds, certain managed funds, or private companies.

A response from Macquarie this month said it did not directly monitor how loaned funds were being used but it had the power to call in the loan or seize collateral early if clients were dishonest.

ANZ, which is targeting Asian customers, was asked whether it traced the source of income for individual foreign buyers when it was lending money to domestic property developers.

The bank's response, published this month, said it did not trace foreign buyers' source of income, but it checked the post-codes of "pre-sales" to make sure they were genuine.

Australian Bankers' Association chief Steven Munchenberg said in a submission that when banks were lending to developers, they did not have direct contact with the foreign buyers and could therefore not investigate their funds.

"Basically, a bank will seek to ensure that the pre-sales contracts represent genuine sales,’’ he said. ‘‘The source of funding for foreign purchasers, however, is generally not investigated."

Even so, the questions come amid allegations wealthy Chinese residents are using back-channels to move money out of the country, including into Australian property.

Chinese media have cited estimates 20 billion yuan ($3.4 billion) has been moved out of China illegally since 2011 via banks.

Macquarie analysts referred to this figure in a report last week, alongside estimates Australian lending to non-residents had surged 27 per cent in the year to March.

At a time of heightened interest in foreign property purchases and strong house price growth, the analysts said the latest allegations provided "food for thought".

Foreign investment in residential real estate, especially from China, has surged recently, giving rise to fears it is pushing up home prices.

Figures provided to the inquiry by Treasury show approvals of overseas purchases were $24.8 billion in the first nine months of 2013-14, a jump of 93 per cent on the previous year.

In 2009, the Rudd government removed a 50 per cent limit on the proportion of new dwellings that could be pre-sold to foreigners off the plan.

However, ANZ told the committee last month that banks would generally not want to participate in property projects where more than 30 per cent of the units were being sold to overseas buyers.

Despite the concern about the growing role of overseas investors in the property market, ANZ also said customers who needed approval from the Foreign Investment Review Board made up just 0.3 per cent of its $200 billion loan book.

The Reserve Bank has also argued foreigners are probably not crowding out first home buyers, though it concedes there is a need for more data on the sensitive topic.

 
 through a federal parliamentry inquiry.
Amid calls for the government to collect more data on foreign investment in property, the banking sectors' loan approval processes have also been scrutinised by the parliamentary commission.
 
 
 
Rudd government removed 50 per cent cap.
ANZ in June said it would not lend to developers sold to more than 30 per cent foreigners.
 
But hte committee 
 
 
Australian banks 
 
 do not investigate the source of finance used by foreign buyers when they are lending to property developers, the industry has told a parliamentary committee.
As part of a parliamentary inquiry into into