HONG Kong has the second highest performing real estate market in the Asia Pacific region, with investors reaping an average annual return of 19 per cent during the past four years. Brooke Hillier Parker has analysed the returns achieved since 1990 on prime office buildings in six cities and considered these from the point of view of Japanese, American, British and local investors to compare the returns in four currencies. The study found Singapore was the one city where foreign investors, who received an average annual return of 31 per cent in US dollars, consistently outperformed the locals. Hong Kong, where yields are expected to remain at an historical low of five to six per cent over the next year, showed the next best average return for US dollar, Hong Kong dollar and sterling currency investments. Overall, the US dollar investor has seen the best returns, beating local investors in every market except Sydney where the recovery in 1993 has been offset by the weakening Australian dollar. The report says sterling investors have achieved slightly better returns in Kuala Lumpur, Sydney and London, but did less well than US dollar investors in Hong Kong, Bangkok and Singapore. The biggest losers were Japanese who achieved significantly lower returns in Hong Kong, Kuala Lumpur, Sydney and London, compared with other international investors. Brooke Hillier Parker partner David Faulkner said the Japanese, however, had achieved only marginally lower returns than the others in Bangkok and were almost as good as the US dollar in Singapore. This was mainly due to strong gains in 1990 in both cities. Mr Faulkner said investors should be cautious about the annual average as this disguised the impact that currency fluctuations could have on any particular year's currency. In 1991, sterling investors, due to the weakening pound, obtained good returns in Kuala Lumpur, while, in 1992, it was the US dollar and Hong Kong dollar investors who benefited most from the office boom in Hong Kong. Sterling investors were the clear winners across the board in 1993, with investors showing a return of 45 per cent in Hong Kong on the British currency and an average overall return of 17 per cent during the past four years. Mr Faulkner said that with recent gyrations in the world currency markets, overseas buyers were now considering the long term impact of exchange rates on international property investments. Investors wanting to increase returns on overseas real estate should carefully time purchases to coincide with fluctuations in international currencies. The report finds that if an investor can synchronise a weakening of his own currency with strong gains in his foreign target market, the overall returns will be much higher. For more cautious investors, the report says investments in more stable markets were less affected by currency fluctuations. The overall returns for the report were calculated by taking the capital growth in any one year and then adding the rental income or yield for the same period. The report says the annual average reflects the average of the whole year returns for 1990 to 1992 together with the annual return for the first half of 1993.