2016 will see Australia’s property prices grow at their slowest rate since 2012 according to research released today.

According to SQM Research’s 2016 Housing Boom and Bust Report, the average capital city dwelling price is predicted to rise by between 3% - 8% during 2016.

That level is below the 9.8% capital growth experienced by capital city dwellings in the 12 months to the end of June 2015, with the predicted slowdown to be driven by a change in the fortunes of the Sydney property market.

APRA’s actions on investor lending and the slowing national economy will also play a factor.

The report predicts Sydney will only see growth of 4% - 9% next year, with Melbourne to overtake it as the best preforming city with a forecast rise in dwelling prices of 8% - 13%.

Strong growth is also predicted for Brisbane, with prices to rise 5% - 8%, while Hobart is predicted to see an increase of between 4% - 7%.

Canberra and Adelaide are predicted to see increases of 2% - 5%.

Perth and Darwin are predicted to continue their poor runs, with prices expected to drop by up to 7% in both cities.

While there will be no nation-wide price correction during 2016, SQM Research managing director, Louis Christopher said there are still some dangers present.

“One of the key risks to the housing market over the medium to long term is the looming threat of global deflation and this is quite a danger to our markets here given the level of debt in the housing market right now, which we note has risen again against incomes over the course of 2014/2015 to be at all-time highs,” Christopher said.

“This threat became all too apparent [last] week when Westpac lifted their variable home loan lending rate. In a global deflationary environment the risk premiums banks would require on their lending book would most likely skyrocket due to the greater threat of defaults and falling asset prices,” he said.

“For 2016 we believe the RBA has some ammunition to offset this looming risk however we are concerned of their ability to handle the issue over the medium to long term.”

For the rental market, the report predicts a flat year of growth for 2016.

“This year, it has become quite apparent that rents have slowed, possibly as a result of the lower inflationary environment,” Christopher said.

“We believe there is evidence that rents will slow further in 2016 with our average capital city forecast to be 0% to 3%.

“Perth and Darwin will experience the largest falls in rents however this is just part of an ongoing trend currently being recorded in these two cities. Hobart, Melbourne and the Gold Coast will likely record the strongest rental increases.”