Hedge funds have stopped dabbling in property in the region, fund managers say. And although private equity players will continue to develop property in India and China, they are more likely to buy buildings on the cheap in the West than in Asia.

"Six months ago it was quite straightforward. We didn't have to answer questions about why to invest in Asia," Guy Cawthra, Asia fund strategist at Morley Fund Managers, told a recent conference in Hong Kong. "Now investors say 'we might not want to invest in Asia, we want to invest in Europe, the UK and US.'"

In the wake of the 1997-1998 economic crisis, Asia, in particular Japan and South Korea, drew a raft of investment from funds run by the likes of Morgan Stanley, General Electric and private equity firms such as Carlyle Group.

Many made fat profits on a revival by Asian property markets, which are now mostly strong because of a shortage of new supply and still buoyant economies.

Jones Lang LaSalle forecast Tokyo office prices will steady this year after a 28 percent jump in 2007, while Seoul, Hong Kong and Singapore and Shanghai are still on the up. Better opportunities now lie elsewhere for investors.

Because of tight credit and a worsening economy, US commercial property values could fall by 20 percent in the next five years from their peak last year, JPMorgan analysts forecast, causing losses of about US$120 billion (HK$936 billion), including on commercial mortgage-backed securities.

London office values have dropped 12 percent from a peak in the middle of last year, and they will be pressured further by forecasts of a 10 percent decline in rental values through next year.

"I think a lot of investors will return to home markets," says Bart Coenraads, head of property at Fortis Investments. "Some will try to buy distressed core and refinance it. They could make good returns."

Last year, total direct investment in the Asia-Pacific region jumped 27 percent to US$121 billion - a sixth of the global total - with about half invested in Japan, where rates are near zero.

Japanese banks are getting cold feet on property, analysts say, only giving loans worth 60-70 percent of a building's value, compared to 80-90 percent a couple of years ago.

Lower debt gearing is likely to crimp returns for equity investors. But having spent years setting up teams, private equity funds may not withdraw completely from Asia, says Tim Bellman, global head of strategy for ING Real Estate.

Many investors, such as Morgan Stanley Real Estate Funds, no longer see themselves as "opportunistic," and are in Asia for the long haul. "Funds have been raised and platforms are set up, and they don't want to unwind them overnight," Bellman says. "But, at the margins, opportunistic investors who looked at Asia are finding those opportunities back home."

Morgan Stanley is building housing in China and taking stakes in Indian developers in a high-risk, high-return strategy. But it also bought the Tokyo headquarters of Citigroup last month, indicating it is still interested in "core" assets.

Meanwhile, Carlyle is shunning a Tokyo office market it believes is too expensive and is buying shopping malls and homes for the elderly.

But in a sign that deals are getting tougher in Japan, Keith Greengrove, a managing director at Lehman Brothers, says his efforts to buy a collection of offices in Tokyo were scuppered last month by arduous loan conditions. "There's no property finance available in Japan today, no market for primary or secondary paper," Greengrove told a Hong Kong conference.

"We tried to buy a big class-B portfolio, with good tenants and a good sponsor, but there was only one potential lender," he says. "We're going to wait for the debt markets to shape up." REUTERS