The prices of used apartments in Melbourne have dropped significantly over the past couple of weeks as more apartment supply hit the market. The huge rise in apartment construction was driven by easier planning rules in Melbourne compared to Sydney, as well as higher population and bigger demand from Asia investors.

However, Australian banks have now tightened their lending regulations to foreign investors especially Chinese ones, thereby making it harder for them to get money out of China. Because of the continuous apartment construction in Melbourne, expect an avalanche of Melbourne apartments in 2017 and 2018, which could eventually lead to property glut disasters. This fear that there is worse to come also holds people back from buying apartments at the moment, hence the decline in Melbourne apartment prices and a possible apartment collapse in the future.

But according to Robert Gottliebsen of The Australian, there is an alternative scenario to the Victorian apartment industry. While it is harder for investors coming from mainland China to secure loans in Australia, that is not the case for investors coming from Hong Kong.

In fact, the fall in Australian dollar has made Melbourne apartments look very cheap by Hong Kong standards. Therefore, many Hong Kong residents are considering the opportunity to acquire affordable property from a major city like Sydney. They could buy contracts from Asian investors who did not want to settle or could not settle. If Hong Kong picks up the slack, apartment building could continue and the big slump could be prevented.

"If Victoria is smart enough to put out the Hong Kong welcome mat, the crisis could be averted," concluded Gottliebsen in his column.

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