Docklands: balloon or bubble?

Melbourne's Docklands precinct could be showing the first oversupply cracks in Australia's apartment market. Already the release of new apartments is being postponed, new investors are struggling to get finance and rents are being discounted to attract tenants.

There's a two-year overhang in rental apartments in inner Melbourne, and some analysts view the Docklands as the first area in a nationwide collapse of the apartment market which may see prices fall by as much as 30 per cent.

However, the Commonwealth Bank's head of financial strategy, David Rees, doesn't think Australia's property market boom is a bubble – but a “balloon”, which will slowly deflate rather than burst. We know the market will cool down, said Mr Rees, and in the past this has meant price falls of 5 to 10 per cent, and with prices increasing over 20 per cent in the past year people will still be ahead. But the apartment market is more volatile and subject to vacancies, thus could fall further.

Investors have already lost money on Docklands apartments, and Monique Wakelin of Wakelin Property Advisory says a lot would have negative equity in their properties.