The 3.8 per cent drop in Sydney unit values will be greater than the 0.2 per cent drop predicted in Perth unit values, but less significant than the 4.8 per cent drop for Melbourne units and 7.2 per cent drop for Brisbane units.

Weaker activity from investors, who had dominated the market in recent years, would hold the key to Sydney unit prices falling, according to the QBE report.

“Capacity for investors to enter the market or pay higher prices is limited. This will put downward pressure on unit prices as investors retreat from the market,” the report said.

QBE Lenders’ Mortgage Insurance CEO Phil White said fewer investors would give owner occupier buyers a better chance to get into the market.

“With more lending restrictions impacting investors, it could be good news for owner occupiers as they should find less competition from investors,” Mr White said.

Increased home building in Sydney, while not as significant as in Melbourne and Brisbane, has also taken momentum out of the market, preventing a further boom in prices.

One of the factors that drove Sydney home prices so high over 2012-2016 was a massive housing shortage brought about by little residential construction from 2005 through to the years following the GFC.

That shortage still exists but is not as large as it once was. QBE forecasted that in 2020 Sydney will only be short of 12,900 homes needed to account for underlying housing demand, down from a 39,300 shortage at June 2017.

The shortage of homes in 2020 would prevent a major collapse in prices but would not be enough for some of the price gains of recent years to continue.

Another factor limiting prices from growing at high levels over the coming years is that they’re simply too unaffordable for most buyers, Mr White said.

“Recent low affordability in (Sydney) should stop purchasers from taking larger mortgages and bidding up prices even more,” he said.

The apartment sector will play a growing influence on the nation’s property market over the coming decades, Mr White added.

“With so many Australians priced out of the housing market, the Australian dream of owning property is increasingly turning to high and medium density apartments,” he said.

“Units contribute to a greater share of the market as changing lifestyles and affordability dictate property choices ... Encouragingly, that dream should become a reality for more Australians, with improving affordability overall.”