Foreign buyers should be let back into the market and stamp duty cut in a bid to revive Melbourne’s stalling property fortunes.

Market experts have warned politicians would need to consider radical ideas to avert predicted price drops for at least another 18 months.

Real Estate Institute of Australia president Malcolm Gunning said the federal government’s tightening of lending had slowed house price growth and created an “artificial credit squeeze”.

He said the result was that rather than cooling the market, they had sent parts of it into “free fall”.

But he warned even pulling back now wouldn’t renew price growth as buyers were spooked.

“Last year, there was a fear of missing out. Now, there’s a fear of getting in before the market bottoms out,” Mr Gunning said. “So now we have a stand-off.”

He said the government underestimated impact of the Royal Commission into financial services.

“This is all a controlled deflation of the market,” he said. “But I reckon they have been blindsided by what’s coming out of the Royal Commission and by how quickly the public has ­reacted.”

Mr Gunning said the government was using lending restrictions as a brake but “they have put it on too hard”.

He said another idea to kickstart the market again was to entice international business to Melbourne and Sydney with a higher paid workforce willing to pay premiums for property.

Mortgage Choice Australia chief executive Susan Mitchell said the reality of home lending following the Royal Commission meant buyers would be borrowing less and it would take up to 18 months for prices to stop falling.

“In the near to medium term, it is likely that dwelling values will ­continue to fall, and eventually taper off before they rise again,” Ms Mitchell said.

Realestate.com.au chief economist Nerida Conisbee said increasing the population at an even faster rate and encouraging investors would help Melbourne recover.

Ms Conisbee said the “biggest problem” was investors had staged a “massive pull back”.

“To return the market to strong conditions, they’re the group you would have to look at,” she said.

She said removing barriers to international investment might also have a modest impact.

The state government could also fire things up again by scrapping stamp duty or limiting the supply of new homes.

Treasurer Josh Frydenberg defended the government’s efforts to slow the market through the Australian Prudential Regulatory Authority

“APRA’s intervention in the housing market is a targeted, proportionate and short-term approach, introduced at a time when prices were going up,” Mr Frydenberg said.

nathan.mawby@news.com.au