But it noted a cooling in the fourth quarter, due to consecutive interest rate rises by the Reserve Bank of Australia - totalling 175 basis points since October 2009 - alongside a reduction in the hitherto generous grants for first-time homebuyers. These factors 'have succeeded in cooling [Australia's] red-hot property market to some degree', the report said.

A new International Monetary Fund report also predicted an 'orderly fall' in Australian property prices this year.

Others agree that rising interest rates have had a cooling effect on the market. The latest RP Data-Rismark Hedonic Home Value Index shows a slump in November, as higher interest rates hurt housing affordability. Noting a minus 0.2 per cent decline across capital cities last year, the index found Australian home values were lower than the levels they reached in March.

It concluded there had been no capital growth since the end of the first quarter. Tim Lawless, RP Data's director of research, says interest rates have been a key factor behind the 'soft landing' of the Australian property market. But he also says that in the broader scheme of things, 'these are fairly modest adjustments in value'.

The Real Estate Institute of Australia bases its data on the Mortgage Choice Real Estate Market Facts publication, which also reflected falling prices - albeit by a modest minus 0.5 per cent.

Yet according to a seller of Australian real estate to offshore buyers, foreign investors are unlikely to be put off. Singapore-based Julian Sedgwick, senior associate director of International Residential Sales, Savills, says, 'everyone is buying' in Sydney and key areas of Melbourne - places where there is high demand and a lack of supply.

'This is due to the difficulties in getting planning permission in city centre locations and the time it takes,' Sedgwick says. 'Until this is addressed, we see the market either levelling off or continuing to grow.'

Other positive indicators are the strength of its currency, and the perception that Australia, one of the few countries largely unaffected by the economic downturn, is a safe place to invest. The rental market is also strong, producing high yields which, in key locations, are predicted to be about 5 per cent this year. Even a tightening of restrictions on foreign ownership has not stopped the flow of buyers from Asia, many of whom have children being educated in Australia.

'As long as you are buying in key locations like Sydney and Melbourne, and there is still high demand, we perceive great rental returns and good long-term growth,' Sedgwick says.

He says buying in these locations is not a quick flip-in, flip-out investment, but should be viewed over at least five years.

Christopher Joye, Rismark's managing director, agrees that Australian real estate may not look like an overwhelmingly attractive value proposition for overseas investors in the next 12 months.

But 'if you believe in the strong economy and the China story', the Australian housing market will be a reasonably good bet over the longer term, he says.

So what's ahead? While predicting its 'orderly fall' in values this year, the IMF also says Australian house prices rose by almost 120 per cent in real terms in the past 20 years - faster than most comparators - and has recovered to pre-crisis levels.

It found robust trade, strong population growth and record-high commodity prices will continue to support house prices.

Savills' research also puts Australia on track to be one of the global real estate heavyweights of the world, alongside Tokyo, London and New York. It says Sydney, Melbourne, Brisbane and Perth are fast becoming attractive prospects to overseas buyers.