An Australian apartment glut is expected to drag prices down by between 4% and 7%

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A glut of apartments is likely to see prices fall over the next three years, dropping by 7% in Brisbane, 5% in Melbourne and 4% in Sydney, says the QBE Australian Housing Outlook 2017-20 report.

But house prices are expected to surge in major cities, including 16% in Canberra, 11% in Hobart and 10% in Melbourne.

Sydney, which had 12% growth in house prices in the 2016-17 financial year, is expected to flatten to -0.2% by 2020.

Here are the forecasts by city:

Source: QBE
Source: QBE

In Sydney, QBE says house prices will flatten by 2020 to an average $1.15 million.

It says forecast higher interest rates and lower loan-to-value ratios for investor lending are expected to limit the ability of investors to enter the market.

This is expected to put downward pressure on unit prices as investors retreat.

Phil White, CEO of QBE Lenders’ Mortgage Insurance, says apartments will play a growing influence on the nation’s property market over the coming decades.

Units now make up 46% of all residential construction across the country.

“With so many Australians priced out of the housing market, the Australian Dream of owning property is increasingly turning to high and medium density apartments,” he says.

“Units contribute to a greater share of the market as changing lifestyles and affordability dictate property choices.

“Encouragingly, that dream should become a reality for more Australians, with improving affordability overall.”

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