New inner city apartment prices could fall by 20 to 25 per cent over the next 12 to 18 months as restrictions on capital flow out of China kick in, says QUT property economist Professor Chris Eves who warned of the collapse in March 2015.
“It will devastate the inner city unit market which is geared towards foreign owners but spare the new apartments in the city fringe which is targeted at the domestic market,” Professor Eves said.
“Foreign buyers think it’s great to invest in the city because they live in high rise cities. They think it is the only place to buy.
“But apartments that have been pre-sold in the past six or seven months where construction has started and some that are two or three months off completion might not be able to settle the final payment now that China has introduced measures to stem capital flow.
“Developers will have to put them on the market and with the lack of demand they will have to discount their prices. If they sell for less than the original price less the 10 per cent deposit, they will keep the deposit.
“Some developers will go out of business – this always happens in oversupply situations.
“The bonus will be for suburban dwellers who’ve always had a hankering to live in the city. But, as these apartments are not geared for families, they’ll be mostly taken up by young singles or couples without children.
“If they can’t sell them they will rent them out causing an oversupply of apartments for rent.”
Professor Eves said the market will see rental prices drop in about three months.
“It will put rents down across the board by 15 to 20 per cent. There’ll be more rental property on the market which will allow renters to afford to move a bit closer to the city.
“It could affect the house market because it might be cheaper to rent a three-bedroom apartment than a three-bedroom house in the suburbs for families, but most don’t want to move too far from their children’s school etc.
“Brisbane doesn’t have an oversupply of freestanding houses and there will still be demand for them, although rents will drop in this market too.”
Professor Eves said any increase in interest rates above four or five per cent will worsen the situation.
“A rise in interest rates is not likely, however, in the near future, possibly encouraging some people to buy an apartment for investment and wait for the good times to return.”
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