Asian property investment could dip because of rising borrowing costs and investor risk aversion stemming from the US subprime crisis, but the region still is a better bet than the struggling US and European markets.

European and US commercial property markets, which had been energized by a spate of leveraged buyouts (LBOs) by private equity (PE) companies, are now expected to suffer because of the turmoil in credit markets sparked by US mortgage defaults.

With exposure to US mortgage-linked collateralized debt obligations (CDOs) causing havoc in financial markets, credit for property deals, including commercial mortgage-backed securities, is drying up in the West.

Asia's property industry, where complex securitizations are an anomaly, has lesser worries--such as a narrowing gap between bond and property yields that puts pressure on returns, and a rising yen that could make Japan expensive. Convincing nervous investors to buy into thriving but notoriously volatile Asian property markets could also be tough.

Robert Lie, Asia head at ING Real Estate, said investors could no longer rely on a simple formula of cheap borrowing and rising capital values. "The job's getting a bit more difficult," Lie said. "It doesn't mean you shouldn't invest in property, but you should rely more on rental increases and less on capital markets."

Lie suggested that PE property funds would have to change tactics, after flourishing in recent years by snapping up non-performing loans in the wake of Asia's financial crisis and riding a wave of asset inflation.