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BIS Shrapnel has been highlighting for the past year that the majority of capital city markets, with the exception of Sydney, will be going into oversupply by mid-2017.
It needs to be understood that since 2010, house-price growth in Brisbane, Adelaide, Perth, Hobart and Darwin has been below the inflation rate and given these cities are already oversupplied, or will be by 2017, we think modest nominal declines are possible and falling real prices are certain over the next three years.
In Sydney, despite a record 45,000 dwelling commencements in calendar 2015, it needs to be remembered that between 2006 and 2014, there was a massive underbuild and it was this undersupply that has driven price growth of over 55 per cent in median house prices in Sydney since September 2012.
Rental vacancy rates remain at 2 per cent and there is an extremely low risk that any oversupply will develop in the Sydney market before 2020, unless high-density apartment commencements are sustained at current record levels.
Given the drop in investor demand over the past six months, we forecast an easing in off-the-plan apartment sales over 2016-17 and 2017-18. In this scenario BIS Shrapnel's forecast is for median apartment prices to decline by a modest 5 per cent to 7 per cent by late 2018 and even less for detached houses.
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