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Property market ‘shakeout’ predicted, amid oversupply

Apartment buildings

With the rate of construction soaring in recent years, Australian housing prices are predicted to feel the impact of an oversupply.

HSBC chief economist Paul Bloxham says two Australian cities in particular are likely to feel the brunt of apartment oversupply.

“We do think there’s a bit of a shakeout to come in the apartment market in Brisbane and Melbourne where there’s evidence that there may be some oversupply in the coming years,” Mr Bloxham told nest.egg.com.au.

“More broadly, however, we’re not of the view that there’s going to be a house price decline in those cities. We think that’ll affect apartment prices but it won’t directly affect their house prices.”

Meanwhile, economist and senior fellow of think tank Per Capita, Stephen Koukoulas believes ramped up supply in Sydney and Melbourne could see house prices take a fall.

“We’re building an incredible amount of dwellings at the moment, apartments in particular, as well as houses so that undersupply that has dogged us previously is now being addressed. There’s no question that we’re going to have weakness in house prices but it’s difficult to work out how much,” Mr Koukoulas told nestegg.com.au.

“My educated guess based on supply and demand, and throwing in interest rates and these sorts of things is that we’re going to have house prices flat or down a few per cent. It’s a welcome change as it brings a bit of stability back into the overall housing market when we’ve had this incredible run up in prices.”

Mr Bloxham is more optimistic that price growth will continue to cool in Sydney and Melbourne without seeing a drop.

“Those housing markets are already cooling and while house prices are still growing, they have cooled down from their pace last year. That partly reflects tighter lending standards on the part of the financial sector, slowing down the pace of credit growth,” he said.

“More supply is coming to market as more and more apartments are being built, slowing down house prices to a degree. We think those two factors are likely to keep slowing house price growth over the coming year.

“We have price growth at single digits next year.”

Property market ‘shakeout’ predicted, amid oversupply
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