Thousands of high-rise apartments could be dropped into the property market at the same time, potentially causing property prices to plunge.

According to reports from mortgage brokers, a huge number of brand new off-the-plan apartments could be forced onto the market with existing buyers struggling to gain the necessary financing – despite paying deposits many months ago.

According to the Australian Financial Review (AFR), Shanghai-based financiers claim their Chinese clients’ funding from Australian banks has been frozen and they face the prospect of foreclosure.

The big four Australian banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have all stopped lending to property buyers with foreign income. That came as a result of sloppy applications and widespread fears of fraudulent activity.

Having paid a deposit, those property buyers now need to get their apartments valued and secure funding to complete the sale – but for many that appears unlikely. Some will be forced to foreclose, others could be forced to take on much higher interest rate loans from smaller lenders, and some may default – leaving the property in the developer’s hands.

Those scenarios could lead to a series of cascading effects, forcing developers to go bankrupt, property prices to plunge as a glut of similarly-priced brand-new apartments fall onto the market, and banks’ bad debts to rise. There’s also potential for many foreign buyers to abandon the market altogether.

Mortgage brokers could also face a slump in commissions – with many not being paid until final settlement of those units.

The AFR also reports that a number of offshore financiers, typically based in Singapore or Malaysia are working on rescue packages for borrowers, lending funds at higher rates or buying apartments off distressed borrowers at discounted prices.

Making the situation worse is the huge increase in new apartments being built in the past few years, particularly close to the CBDs of Sydney, Melbourne and Brisbane.

Foolish takeaway

If you’re looking to buy a high rise apartment close to the centre of Australia’s capital cities, you might want to wait a while as prices could sink far from where they are now.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.