Overpriced OTP apartment buyers will suffer most: BIS Shrapnel's Robert Mellor

The director of economic forecaster BIS Shrapnel, Robert Mellor, said east coast property owners should not be fooled into thinking they are immune from downturns in property prices.

But he said any corrections will not be as quite so dramatic as the mining town crash.

Mellor told News Ltd that rapid property price rises could not be sustained due to the cyclic nature of the economy.

Those who have paid hundreds of thousands of dollars above the value of their property in competitive markets such as Sydney would likely see a drop in the value of their homes in the next few years, he said.

“People who have bought off the plan and those who have paid clearly inflated premiums for established homes will suffer most,” he said.

“Those who have bought 10 to 20 percent more than a property was anticipated to go for, might suffer a 10 percent loss in 12 months time.”

Mellor forecast that continued low interest rates would head off the threat of substantial mortgagee auctions in the major cities.

However, he said in the climate of heavy borrowing to meet escalating prices, there was one sector of mortgage holders who were particularly vulnerable.

“Particularly people doing interest only payments, everything for them is predicated on price growth, their investment strategy is going in for price growth,” he said.

“They may even be started to be affected by a small movement in interest rates, so they could find themselves getting into trouble.”

He said investors looking to sell in the next couple of years would likely lose money if they had not had their property long, he said.

“These abnormally buoyant conditions are not going to be sustained,” he said.

“Perth is a good example.

"Perth house prices dropped by 10 percent, thanks largely to an oversupplied market.

“Prices there are down 10 percent since December 2014, which just highlights you do not need rising interest rates to bring about a correction.

“All you need is too much supply coming on stream, which, in Perth’s case was houses."

He said a 10 percent correction by historical standards was a fairly substantial decrease.

“Even in previous recessions, it’s been rare for prices to fall more than five per cent.”

Brisbane apartment investors, and to a lesser extent their counterparts in Melbourne, are particularly at risk of heavy losses, he said, due to oversupply.

He said the Melbourne market had shown unexpected resilience, 

He expects Sydney price falls to start in late 2017 and continue into 2018.

“What you are seeing in sales activity is a market that is heavily driven by investors and that’s potentially unsustainable,” he said.

“The prices they are paying are over the top.

"A year ago I would have said the market was flattening out, and there was not a significant risk of price decline in Sydney, but if the latest data is correct, there is a risk the price correction later this year and into 2018 could be in the field of 10 percent.”