Apartment prices in Aussie cities predicted to drop as house prices rise

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Melbourne Apartments
Advertising signs are seen near a high rise apartment building site in central Melbourne March 1, 2011. Reuters/Mick Tsikas

A new report released by QBE Insurance shows that house prices are expected to surge in Australia’s major cities over the next three years. Huge surges in house prices are predicted in cities like Canberra, Melbourne, Brisbane and Hobart.

QBE Lenders’ Mortgage Insurance CEO Phil White said it is not good news for young Aussies who want an acre of land and a swimming pool. Based on the QBE forecast, the demand for units may weaken due to tighter investor lending standards.

“But if you’re a first-time buyer looking to get your first foot in the market, this is very promising because unit prices look like they could drop in Sydney, Melbourne and Brisbane,” he added, according to News.com.au. White believes the softening of unit prices will have an increasing influence on the country’s property market in the future.

The Australian dream of owning a property is now turning to high and medium density apartments with several Aussies priced out of the housing market, White said. On the positive side, that dream must become a reality for more Aussies thanks to improving affordability overall. The report forecasts Sydney, Adelaide, Perth and Darwin to become more affordable.

Foreign buyers

A Credit Suisse analysis of NSW Revenue figures reveals that almost one in four new homes in New South Wales is being "snapped up" by Chinese buyers. Analysts expect foreign buyers to continue underpinning property prices in the future.

In a note to clients, Credit Suisse analysts Hasan Tevfik and Peter Liu said they expect a “stronger for longer backdrop” for Australian housing. They noted that the stock of wealth in China was equal to 1.2 times the value of Aussie housing in 2011.

Today, they said, it has twice as much. Tevfik and Liu said local incomes are becoming less relevant in knowing the outlook for house prices while regional wealth creation becomes more relevant. In NSW, foreign buyers pour an annualised $5.9 billion into residential property. The amount is $3.4 billion in Victoria and $700 million in Queensland.

"We calculate foreigners are buying the equivalent of 26 per cent of the value of new supply in NSW, 17 per cent in Victoria and 8 per cent in Queensland,” the analysts wrote. Chinese are the biggest buyers, accounting for 87 percent of the value of foreign purchases in NSW in the first six months of the current year.