An out of balance supply and demand ratio is set to have a significant impact on residential property prices, with a major forecaster predicting price falls for a number of Australia’s capital cities over the next three years.

According to BIS Shrapnel’s Residential Property Prospects, 2016 to 2019, report median house and unit price growth is set to cool across all capital city markets through to 2019 as falling investor demand and slowdown in population growth coincide with continued high levels of construction within the residential sector.

BIS Shrapnel claims work commenced on 220,000 new dwellings in 2015/16, which it claims means completions will peak in 2016/17 and remain elevated through 2017/18.

But BIS Shrapnel believes demand for new dwellings per year over the next five years will top out at 159,200, pushing all capital cities into a state of oversupply.

In fact, nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand. As these projects are progressively completed, it is likely that there will not be enough tenants in a number of cities to support rents and consequently values upon completion,” BIS Shrapnel BIS Shrapnel senior manager and study author, Angie Zigomanis said. 

“National population growth in 2014/15 was at its second lowest level since 2005/06, with net overseas migration falling from 229,400 persons in 2011/12, to 176,500 persons in 2014/15,” Zigomanis said.

Demand for property has also suffered thanks to the Australian Prudential Regulation Authority’s (APRA) moves to restrict lending to investors.

“In New South Wales and Victoria in particular, where the strength of investor demand has been a key driver of the Sydney and Melbourne residential markets respectively, the decline in investor activity has slowed the pace of price growth,” Zigomanis said.

“As investor expectations of capital gains are reduced, investor demand is expected to weaken further, creating additional downward pressure on prices,” he said.

Over the next three year, Brisbane Hobart and Canberra – in that order – are the best prospects for house price growth according to the BIS Shrapnel report.

Affordability and an undersupply in detached houses will push the median Brisbane house price up 7% by 2019; however oversupply issues will see the median apartment dip 6%.

Hobart is also expected to see house price growth of 7%, with affordability and interstate migration driving the market. The median unit price will fall 8% as the market in the Tasmanian capital is not as attractive to investors.

It’s a similar story for Canberra, where the median house price is expected to be 6% higher in 2019, while oversupply will push unit prices down 4%.

In Sydney, BIS Shrapnel estimates the median house price has improved 59% in the past three years, but the NSW capital will see prices fall by 2019.

The median house price in Sydney is expected to fall 1% over the next three years, pulled down by the withdrawal of investors. That will also impact the unit market, which is expected to see a 5% reduction in the median price by 2019.

Median house prices in Melbourne are also forecast to fall by 1% over the 2016 to 2019 forecast period, following aggregate price growth of 36% over the three years to June 2015.  

Given the level of apartment supply due to come through, BIS Shrapnel warns there is greater downside in the apartment sector, where the median unit price is forecast to fall by 8% in the three years

A struggling economy is set to result in Adelaide’s median house and unit prices dropping by 2% by 2019.

Similar poor economic conditions in Perth and Darwin will see their median house prices fall 1% and 2% respectively.