Unit prices to tumble by 9%

QBE’s Housing Outlook 2016-19 by BIS Shrapnel is an annual overview of the Australian housing market and forecasts movements in the median house and unit price across each capital city as well as key regional centres.

Brisbane is forecast to experience the highest house price growth of the three largest capital cities to June 2019, but units in the city are expected to fall by a cumulative 8.2 per cent over the same period.

After extensive growth, Sydney house prices are tipped to remain flat in the period to June 2019, and unit prices could fall 6.8 per cent over the coming three years.

Melbourne, often the poster-child for oversupply and apartment price correction concerns, is facing both house and unit apartment declines. QBE’s report flags that unit prices could be down 9 per cent by June 2019.

“The underlying demand and continued growth of the Melbourne house market has been underpinned by a strong population increase, with Victoria recording a net boost of 11,000 people in the year to June 2016. This population growth has continued to maintain a deficiency of dwellings in the Melbourne market despite continued growth in new dwelling supply,” the report said.

“Melbourne will see dwelling completions peak in 2016/17. Short-term population growth is expected to ease and a 0.6 per cent price decline in the median house price is forecast for the period ending 2018/19. Record levels of unit completions and a strong project pipeline are expected to affect Melbourne’s median unit price, which is forecast to decline by a total of 9 per cent to June 2019.”

Across the nation, slowing rental and price growth is likely to curtail investor appetite for residential property, the report said. In addition, recent tightening in bank lending policy towards overseas investors will also slow overall investor demand, according to QBE.

The report details how fewer investors are now entering the market due to banks’ tightening lending criteria – in 2015/16 investors accounted for 44 per cent of all residential loans, compared to 51 per cent on 2014/15.

In September this year, BIS Shrapnel’s associate director of building forecasting Kim Hawtrey said Australia was hurtling towards a serious property “hangover” as the consequences of rapid price growth, over-development and increasing settlement risks catch up with investors.

“The greatest apartment boom of all time” means “we’re getting way ahead of ourselves” – and way ahead of underlying demand, Mr Hawtrey said.

“Use of sky acreage [in Australia] has gone beyond effervescent to positively humongous. Pumped up by investors, it’s theme park scary how many apartments we’re building,” he said.

Hawtrey noted we are sitting on the precipice of supply seriously outstripping demand and said “it’s like an all-night drinking binge – we’re going to have a huge apartment hangover the morning after”.

At the time, Mr Hawtrey flagged inner-Melbourne apartments – especially those in Docklands, North Melbourne, Doncaster, St Kilda, Queens Road, Carlton and South Yarra – and Brisbane suburbs such as Newstead, Bowen, Southport, Fortitude Valley, Towong, West End and Hamilton – as the most at-risk locations at the end of this property cycle.

[Related: Foreign investor headwinds to have major impact on real estate]