Melbourne apartment owners are taking twice the risk of seeing capital losses compared to those in Sydney, according to credit rating agency Moody’s.

Data from Moody’s shows that average buyers of inner-city high rise apartments in Melbourne have just 7.6% in additional equity since taking out a mortgage, compared to nearly 20% of equity created in Sydney apartments and 10% in Brisbane.

That might say more about the relative price gains for apartments and units in Sydney compared to other cities, though.

Sydney apartments have seen 40% growth in price compared to just 5% in Melbourne. That has much to do with the surge in apartments coming onto the market in Victoria, including an estimated 14,000 more over the next two years according to the Australian Financial Review (AFR).

It means for the Melbourne apartment buyer borrowing 95% of the purchase price, a correction of 13% would see them owing more on their home loan than their property is worth.

Sydney property investors would need to see a 25% fall in apartment prices to put them into negative equity. As Moody’s analyst Natsumi Matsuda says, “Mortgages in areas of inner Melbourne have the least additional equity to absorb losses, owing to relatively low rises in apartment prices.

The Melbourne suburbs most high-risk are in the central business district (CBD), Docklands and Southbank, and account for almost two-thirds of the riskier investment and interest only loans.

QBE Insurance Group Ltd (ASX: QBE) has forecast that Melbourne apartment prices could fall around 9% over the next three years, while Sydney could see a fall of nearly 7%. The company is one of Australia’s largest lender’s mortgage insurance (LMI) providers.

And earlier this year valuer WBP Property showed Melbourne off-the-plan apartments fell 11% between purchase date and pre-settlement valuation. AMP’s Shane Oliver is also predicting falls in the property market, including as much as 15-20% for units in parts of Sydney and Melbourne.

The news comes as lenders including Commonwealth Bank of Australia (ASX: CBA) and subsidiaries of Westpac Banking Corp (ASX: WBC) again tighten their lending to property investors and those borrowers taking out interest-only loans.

The other issue is foreign investors walking away from apartment settlements, because local banks have stopped lending to foreign buyers, and Chinese buyers are struggling to get cash out of China.

Property buyers beware.

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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.