The Reserve Bank of Australia is watching the numbers closely, as the record number of completed apartments due to settle in coming months could pose a settlement risk if prices fall below what purchasers contracted to pay and their banks won't make up the shortfall. Announcing the decision to keep interest rates on hold at their record low 1.5 per cent on Tuesday, outgoing governor Glenn Stevens repeated earlier observations about apartment construction.

"Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities," he said.

Some commentators predict a large fall. Queensland University of Technology property economics professor Chris Elves last month said inner Brisbane apartment prices could fall as much as 25 per cent over the next 12 to 18 months as Asian buyers walk away from settlements. In March, BIS Shrapnel itself warned of an "accident waiting to happen" due to oversupply in the Melbourne and Brisbane apartment markets.

Still, Zigomanis is more sanguine. Price falls were likely in some classes of the high-rise apartment product so beloved of investors, but Dr Oliver's estimate was overblown, he said.

Commencement of apartments is on the rise.

There were likely to be price falls in some specific markets and some specific locations – even in Sydney, where pent-up demand would in aggregate absorb all of the new supply coming on stream. Supply was indeed rising faster than demand in Melbourne and Sydney, but the falls would not be that great, he said.

Low interest rates

"If you took the average or median price of 12 months out from now or two years out I suspect it won't necessarily be 10 per cent or 15 per cent lower," he said. "It may only be 5 per cent lower or something like that. But there will definitely be instances where people have taken 10 per cent and 15 per cent hits on individual sales."


This has already been the case. In the March quarter 19 per cent of all Melbourne CBD apartment sales were at a loss, CoreLogic figures show.

The main thing preventing large price declines was the record low interest rates allowing landlords to continue to service their mortgages relatively easily, even when low rental payments fail to cover the full monthly payment, Mr Zigomanis said. Separate CoreLogic figures on Wednesday showed median unit rents fell in Sydney, Brisbane and Melbourne in August.

Apartment rentals have stricter pet bans than houses. Erin Jonasson

"There will be price declines," he said. "Anyone who is forced to put their property back on the market and has to take whatever price they can will probably take a 10, 15, 20 per cent hit on price, but in my opinion they would rather sit there.

"Rates are so low most investors don't have to dip too much into their pocket to pay off the mortgage. My opinion is there won't necessarily be a blow-out of apartments onto the resale market. It may not necessarily drive prices down as much as some people may be expecting."

That only applies while rates stay low, however. If rates rise, it's a different matter.

"It then becomes a lot more difficult to meet mortgage payments," he said.