NAB predicts 10% drop in unit prices

The prices of Sydney and Melbourne apartments could fall as much as 10 per cent, with both cities facing an oversupply, the National Australia Bank warned.

A flood of multi-unit developments will lead to an increased vacancy rate, the NAB said, with a potential drop in flat prices that will eventually spill over into the general housing market. This in turn would result in lowered house prices, household spending and consumer confidence, and dampen the overall economy.

The NAB said that vacancy rates in Melbourne and Sydney have already hit 8 per cent due to the oversupply of new units. This will lead to a drop in prices of up to 10 per cent, and a decrease in the rest of Australia's capital city unit prices of around 3 per cent.

The latest Home Prices Guide showed that Sydney house prices grew by around 10 per cent in the June quarter. The median house price rose to $420,000 from $383,000 in the quarter, representing a 23 per cent increase over the year. However, prices for units are slowing already. The median June quarter price rose to $325,000 from $310,000, a 4.8 per cent increase, or a rise of 13 per cent for the year.