Asia-Pacific property markets are  sufferring in the “twilight zone” as financial  anguish in the United States and Europe weigh heavily on investor confidence – unfortunately, the gloom is likely to continue this year.

This is according to an Emerging Trends in Real Estate report by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI) and some property agent community.

Simon Treacy, an institute trustee and ULI South Asia chairman, notes a  swing in sentiment as 2011 drew to a close. “Asia has no shortage of investment capital and, until the middle of 2011, there was more concern over inflationary pressures than lack of demand. Suddenly, however, the prospect of a global relapse into recession is creating mounting unease.”

He expects “significant uncertainty” in economies and real estate markets this year. To the question, “Is this a crisis or opportunity? His answer is, It’s both.”. “Asia has penetrated the twilight zone, as there is still much to play out globally, considering the  debt and political issues in the US and Europe. It’s definitely time to trim down the  risk, focusing on cash flow.”

K.K. So, in charge of co-ordinating real estate taxation services at PwC, note s that unstable  global macroeconomic situations  will  persist to inflict pressure on property pricing, transaction activity and financing.

“Capital flows remain volatile, affected by numerous cross-currents. Inflows and outflows occur more frequently and more rapidly,” he says.

Moreover, So notes that real estate fundamentals in the region, while indicates signs of softening, have remain to be  supportive of continued investment by local, regional and international capital sources.

The question is, where  will brave investors invest their real estate dollars this year? Bsed on the  report, published a few months ago, Singapore, Australia and the Chinese mainland tops the list.

Singapore occupies the top spot for  second consecutive year, with the report noting its status as “a truly global city with a burgeoning asset and wealth management sector”. The city-state also continues to experience strong immigration and tourism growth.

But many of the more than 360 experts getting  consulted for the report believe the market may have peaked. They  imply a large pipeline of grade-A office buildings and lower rent levels may hold down investor returns.

When interviewed as to whether this year would be an optimal year to purchase , hold or sell properties, more than majority of the respondents recommended “hold” in all sectors.

According to a report, Shanghai is ranked second for investment potential for the second straight year. The city keeps on growing and entice institutional capital. But office space remains the main focus due to high demand and short supply, with an equal number of Hongkong property experts choosing “buy” and “hold” in the office market.

Retail growth n Shanghai is strong due to high domestic consumption, brought about  in part by tourism – and more than half of the experts chose “buy” for the retail sector.

Sydney stability, offering “some of the lowest risk found in the Asia-Pacific region”, supports its third-place ranking for investment potential. Last year, there was a rush in office development in the city, with demand showing signs of recovery.

With investors finding good access to capital from multiple sources, acquisitions across all property types have  stayed active and may continue into this year, the report forecasts.

Next up was Chongqing, making its debut in Emerging Trends, and ranked fourth for investment prospects. Home to some of China’s largest car and steel corporations, second-tier Chongqing will profit from increase in labour costs in China’s top cities, which eventually, would also  increase its attractiveness.

Similar to Shanghai, respondents, more than half of them, gave a “buy” recommendation for retail. Office stock is expected to increase spectacularly over the next five years, far beyond the market’s absorption capability.

Somewhere on the mainland, Beijing take pleasure in bullish prospects even as experts in the report observed an economic slowdown or “soft landing”. A positive  aspect in the Chinese capital is the strong commercial leasing market, with a steady supply of new buildings being met with consistent demand and growing rents.

The area is cultivating new, large start-ups which, together with an abundant supply of capital, will sustain further construction. Even though market analysts anticipate China’s economic performance to slow this year, and will depect moderate growth over the next five years, the fact that it holds three of five top investment cities provide  the country a clear advantage.

According  to So, the biggest question allotted to  foreign investors is whether they can pour capital into the mainland, considering the central government’s fear of asset bubbles  the real estate sector.

Among other cities in the region, Ho Chi Minh ranked 9th, Jakarta 11th, Bangkok 13th and Kuala Lumpur 16th for investment potential. Hong Kong dropped a few places to the 14th spot because of its high prices.

As to the question on what to buy, the report rates industrial property first, followed closely by residential real estate.

Office and retail sectors are in the middle, while the hotel sector is the least favoured among investments.