Weak demand and the government's double stamp duty are keeping real estate investors away from Hong Kong's office market, say industry executives, while Japan and Australia have become favoured alternatives in Asia-Pacific. The preferred country-sector combinations are Japan-office, Australia-office and China-retail, according to this year's investment intention survey by the Asian Association for Investors in Non-Listed Real Estate Vehicles. Tight supply in the absence of strong demand growth would keep Hong Kong's office market flat or even push it slightly downwards, said the association's chairman Nicholas Loup, who helped Britain's privately owned property group Grosvenor set up its first Asia office in Hong Kong two decades ago. "Combine that with the [double] stamp duty measure [and] I would imagine investors to an extent would sit on the sidelines waiting to see some proper direction in the market and whether the government is going to relax these measures at some point," he said last week. "The fact that there has been some interference in the market for the first time in this way is sending a signal that maybe the game has changed in Hong Kong, where we used to have a very free and open market without government interference." In contrast, Australia has always been regarded as a transparent and liquid market with easy access, while investors are also looking at Japan as Abenomics boosts growth and investor memories about the 2011 Fukushima nuclear disaster fade. "What is interesting [about] real estate in markets such as Australia and Japan is the yield premium that one can achieve above the cost of funding," said Graham Mackie, chairman of the association's investor advisory board, who also serves as head of Asia-Pacific real estate at UBS Global Asset Management. The funding cost in Japan was 1 per cent while the cap rate was 4 per cent, he said. The UBS fund was also looking for opportunities in mainland China's logistics property sector, as well as refurbishment of Grade-B offices in Hong Kong and Singapore, Mackie added. Real estate investment in Hong Kong generated an average yield of 4 per cent, while Australia offered 6 to 7 per cent, said Simon Mallinson, executive managing director of EMEA at Real Capital Analytics. In mainland China, Loup said there were expectations of a market correction in certain cities and sectors. "So we'll certainly see some shake-up in the market there," he said. "With some high-profile issues at companies and the whole process of smoothing out the debt cycle in China, inevitably there will be some opportunities and better prices coming out in the next 12 months."