Apartment prices to drop in four capital cities in 2017, NAB survey suggests

Apartment prices are tipped to fall across Australia in 2017 with most capital cities facing a surge in supply, a new survey shows.

Next year, house prices are expected to grow 0.5 per cent, while unit prices will drop 1.5 per cent, according to NAB s Quarterly Australian Residential Property Survey Q2 2016, released on Friday.

The worst affected city will be Perth, with a 5 per cent drop in apartment prices, followed by a decline of 3.5 per cent in Melbourne.

Brisbane and Sydney apartments are set to drop 1.8 per cent and 1.5 per cent respectively over 2017.

But the report increased the 2016 national house price growth estimate upwards, from 1.5 per cent growth anticipated in the March quarter report to 5.1 per cent. Apartments are expected to grow 3.6 per cent by the end of 2016, NAB chief economist Alan Oster said.

However, while there is [a] significant amount of uncertainty over the outlook for prices, we expect that this renewed momentum in the housing market is unlikely to be sustained over the longer term, Mr Oster said.

The recent momentum in the housing markets will not be sustained in 2017, National Australia Bank s Alan Oster said. Photo: Greg Ellis

Perth was likely to experience further declines due to economic conditions, while Melbourne and Brisbane face increased supply and weaker investor demand. Sydney s forecast decline was due to similar factors , but pent-up demand would stop prices from falling too far.

And property researchers BIS Shrapnel s Residential Property Prospects report, released on Monday, predicted house prices would also decline across most capital cities over the next three years.

Despite this, there would not be a sharp correction in prices without a higher unemployment rate or rising interest rates, Mr Oster said. For either of these scenarios to occur, there would need to be a significant economic catalyst.

But the moderate price falls in 2017, which could be up to 5 per cent, would likely be followed by an even larger decline the year after, AMP Capital chief economist Shane Oliver said.

In 2018, he expects interest rate rises would start to have an impact on the market.

I still think there will be declines [in apartment prices] of 15 to 20 per cent in the next couple of years, Dr Oliver said.

If it s an area with lots of cranes around and apartments, I d be wary about buying an apartment or a home.

I ve heard anecdotes of apartment prices already falling [in Sydney and Melbourne], but it s not showing up in the aggregate data yet.

And there is uncertainty about whether Melbourne s price drop would be as large as anticipated, Domain Group chief economist Andrew Wilson said. He agreed apartment prices were likely to drop in Brisbane and Perth.

The jury is still out in Melbourne and we re yet to record any falls in prices or rents, Dr Wilson said.

Suburban apartments would still face healthy demand from buyers, but the CBD could face some declines, he said.

The NAB report for the March quarter expected Brisbane and Melbourne to be the best performances, with house price increases over 2016 of 2.6 per cent and 2.3 per cent respectively.

Flat to falling prices were predicted for apartments in most capitals, with Perth and Melbourne to experience the worst declines at 3 per cent. Sydney units were forecast to drop 0.6 per cent. These falling forecasts for 2017 have been maintained.

The survey s 230 industry respondents include a panel of real estate agents, property developers, investors, asset managers, fund managers and valuers

Suburbs tipped for above average capital growth

• Brisbane
• Coomera
• Gold Coast
• Mermaid Beach
• Southport
• Sunshine Coast