Canberra's median house price will rise just 3 per cent over the next three years, according to a report released on Tuesday by property forecaster BIS Shrapnel.
The 1 per cent a year average is the lowest expected of all the capital cities in the coming years, with lower population growth and an oversupply of apartments expected to influence the market.
"We've had a view on Canberra for probably the last 18 months; they've been building way too much, construction's been operating way beyond the underlying demand," BIS Shrapnel's managing director Robert Mellor said.
Their Australian Housing Outlook report predicts the Sydney market will show the highest growth, with a 19 per cent rise expected between 2013 and 2016.
The figures, based on free-standing houses, show the Perth (17 per cent) and Brisbane (16 per cent) markets will also see much higher growth than the rest of Australia, with Darwin the next best with 8 per cent growth in the median house price.
Canberra's low growth will be surpassed by Melbourne and Adelaide (6 per cent), as well as Hobart with 4 per cent.
"We think with falling population growth, simply because the Abbott government will bring about some cutback in the growth of the public sector … underlying demand could fall back," Mr Mellor said.
The 3 per cent estimate is an average increase over the three-year period, with the possibility of a decline in prices.
"Our view is there's going to be a period of weakness, well below the inflation rate over the next three years," he said.
While the figure is grim for houses, the outlook could be "more pessimistic" for apartments after four years of what BIS Shrapnel describes as "massive overbuilding" with the oversupply estimated to be 2600 dwellings.
But the local real estate industry is more optimistic about the market.
"Bearing in mind that [the] Canberra market has been fairly suppressed since 2008 and now that Sydney's starting to move … there's generally a knock-on effect in the Canberra market," Craig Bright, spokesman for the Real Estate Institute of the ACT said.
"Historically what happens, as Sydney rises, investors from Sydney start looking at Canberra because they start to become outpriced in that market.
"From the point of view of apartments, yes there are pockets which have a high supply," he said.
Mr Bright said there was a positive side to a potentially subdued market, especially when combined with historically low interest rates and stable employment rates.
"The Canberra market's probably been the most affordable it's been for the last 20 years in real terms, plus you've got interest rates that are still declining, so from a buyer's perspective, it's probably one of the best times they've actually seen to try to enter the market."
The BIS Shrapnel report also found that rental growth in Canberra "strengthened considerably in 2013, over and above what would be suggested by vacancy rates", which in June were 2.4 per cent.
It also has higher rental yields than the Sydney and Melbourne markets.
