Apartment prices expected to fall in 2017

Credit: Diliff

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.

We've just released our #1 dividend pick for 2017. And the winner is...

With its shares up 155% in just the last five years, this 'under the radar' consumer favourite is both a hot growth stock AND our expert's #1 dividend pick for 2017. Now we're pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is click the link below!

Simply click here to receive your copy of our brand-new FREE report, "The Motley Fool's Top Dividend Stock for 2017."

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.