Housing market headed for correction

“So even with a massive level of high-rise apartment construction at the moment, that market is not going to result in any excess supply developing in the next three years,” he said in the video interview.

“But elsewhere around Australia – even markets like Brisbane which people are fairly bullish on at the moment, we think apartment construction in the inner areas is going over the top and at some point by the end of 2016 there will be some excess supply there.”

Mr Mellor also highlighted Western Australia, which he said is “moving into substantial oversupply” because of reduced net overseas migration and slower population growth.

Local investor demand is expected to “fall off significantly” in markets that are facing an oversupply, particularly inner-city apartments in Brisbane and Melbourne.

Mr Mellor said that strong foreign investor demand is the only thing that might stop a correction happening – but that any delay would come at a cost.

“My big warning is that the more modest correction you get in that higher-density apartment market in 2016, the risk is 2017 and 2018 is going to fall even more rapidly,” he said.

“If you want to isolate the inner-Melbourne and inner-Brisbane markets and look at the high-density component of those markets, at some point construction has to fall by 50 per cent and maybe as much as 60 per cent, because we are at incredibly high levels – unsustainable levels – and ultimately it must lead to significant excess supply.”

[Related: Fresh figures point to property slowdown]