Australia—one of the most expensive property markets in the world—remains a top choice for affluent Asian investors, despite bubble fears, an HSBC report has found.
Property prices in Australia's most populous cities, Sydney and Melbourne, jumped nearly 13 and 12 percent respectively over the past year, but the country is still attracting a great deal of interest among Asia's richest, a note from HSBC argues.
"HSBC's research found that more than a third (37 percent) of affluent Asians currently own an investment property overseas with many of them looking to invest further in the next 12 months," said Alice Del Vecchio, head of mortgages for HSBC in Australia.
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"Looking ahead, interest in Australia is expected to remain strong so [the] economy is set to be a key beneficiary as foreign investment activity can help increase the supply of new housing by stimulating construction," she added.
HSBC said Australia is currently the number one destination for offshore property investment among wealthy Indonesians, and second choice for Malaysians and Singaporeans. For the rest of Asia, 9 percent of affluent Chinese are invested in Australian property, 10 percent from Hong Kong and 18 percent from India.
"It's no surprise that Australia is highly regarded among affluent investors from Asia. Recent HSBC expat research shows Australia is consistently nominated as one of the top countries to live in among expats," said Del Vecchio.
"Australia's appeal also extends to its community links with Asian countries. Close to 70 percent of Australia's international students are from Asia, many of which stay in Australia long term to work or reside," she added.
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Asian investors' appetite for investing overseas has been strong in recent years, as tighter regulations at home - particularly in Singapore and Hong Kong—has pushed investors elsewhere in their pursuit for yield.
"This isn't a new trend but it's caught people's attention recently as it's accelerated. This is due to the wealth affect among the wealthy in Asia," said Tim Gibson, manager of the Henderson Asia Pacific Properties fund at Henderson.
"In central London, for example, around 50 percent of those buying properties of £500 million ($833.1 million) or over are foreign," he added.
(Read more: Are fears of an Australian housing bubble overblown?)
As investment demand for Australian and U.K. properties continues to thrive, some analysts have warned that these markets are showing bubbly characteristics, whereby prices would rapidly rise to unsustainable levels prompting a sharp collapse.
Henderson's Gibson said he was concerned about a bubble forming in London's property market, blaming the government's controversial 'Help-to-buy' scheme designed to aid first time buyers by providing a hefty chunk of equity, but said he was less concerned about Australia.
(Read More: No UK housingbubble, just a London one: EY)
"The Australian property market is not as far out of whack as the U.K.'s as there are some more natural barriers. There is no Help-to-Buy scheme available and there are restrictions on overseas buyers, such as they can only buy new-builds," he said.
"It is getting frothy, however. I would say it was coming to a boil, I don't know if it's boiled over yet," he added.
The HSBC report found that affluent Asian investors were broadening their scope from traditional property markets in Australia like Sydney and Melbourne to Queensland and Australian Capital Territory (ACT).
(Read more: Where's the next property bubble building?)
"Cities like Brisbane may provide investors with a better entry point into the Australian property market given house prices there have lifted by only 3.8 percent over the same time period," said Del Vecchio.
HSBC conducted its research by involving over 7,000 affluent individuals across seven Asian countries.
(Read more: Australia to be 'odd one out' in 2014: Goldman Sachs)
— By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie