Apartment markets in Melbourne and Brisbane are tipped to fall in 2017 thanks to overbuilding and the resulting oversupply in some suburbs.
That's according to HSBC economist Paul Bloxham.
He sees Melbourne apartment prices falling between 2% and 6%, while Brisbane is expected to see drops of up to 4%.
However, it shouldn't have an impact on the overall housing market or the economy Mr Bloxham says. The Australian housing market is forecast to see slowing growth of between 2% and 5% in 2017, thanks to 1) tighter lending criteria, 2) strong apartment supply and 3) higher interest rates.
A fourth factor is slowing demand from overseas investors – who face tough criteria to be eligible for a mortgage from Australia's lenders – with several completely banning loans to borrowers with only foreign income.
Westpac Banking Corp (ASX: WBC) has reportedly become the first of the big four banks to raise rates – on its fixed rate home loans as well as investment loans. That follows several smaller and non-bank lenders raising their rates over the past month or so as we've noted here and here.
It won't be long before Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) follow Westpac's lead and raise rates.
Sydney prices are expected to rise between 4% and 6% thanks to population growth and limited signs of oversupply. Detached housing prices are projected to rise generally, with Melbourne seeing between 5% and 6% growth.
But HSBC's forecasts pale into insignificance when compared to other estimates. AMP Capital's Shane Oliver is predicting a fall of between 15% and 20% in apartment prices within the next two years.
Melbourne's CBD and surrounding suburbs are expected to be the hardest hit given the concentration of apartments in those locations, with Brisbane likely to see similar results. Sydney's apartment construction is more spaced out, so may not experience the same problems as Melbourne and Brisbane.
The unforeseen problems are the second-order effects if apartment prices plunge. Property developers are on the front line, as are apartment investors, but standing right behind them are the banks and other lenders.
