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These underdogs now offer best property value

Europe's once-battered economies now offer the best value in real estate, according to a new report from Knight Frank, with Slovenia, Ireland, Portugal and Greece ranked among the most undervalued markets in the world.

The report compared housing markets across 27 countries, assessing how prices performed in relation to rents and incomes.

Speaking to CNBC, Nicholas Holt, head of research at Knight Frank Asia Pacific, said these markets look attractive because the threat of a euro zone breakup has receded.

"These cities have come from seeing price declines of 50 to 60 percent back in 2008-2009 to enjoying a recovery of 20 percent annual growth," said Holt. "Ever since Mario Draghi said back in the autumn of 2012 that he will do whatever it takes to prevent a disorderly break-up, investment in these cities has picked up."

He highlights Dublin's market recovery as the most noticeable: "Ireland had a huge overhang of supply from 2004 to 2008 but ever since they came off euro zone bailout life support at the end of 2013, that's helped their outlook immensely.

Read MoreIreland: Real recovery or all blarney?

Madrid is another city to watch, according to Holt. Real-estate prices in Spain have dropped about 30 percent from 2008 levels.

Germany and Japan are the only two developed countries in the group as they missed out on the double-digit price growth observed in many of their developed peers in the early 2000's, the report said.

Several key European markets also look attractive for prospective second home buyers due to the scale of price discounts now available. The French cities of Dordogne and Gascony have seen prices plummet 45 percent since 2008, while Praida Da Luz in Portugal has seen a 30 percent drop, according to Knight Frank.

Donald Han, Chesterton Singapore's managing director, highlights another reason why hot money is returning to developing European economies: "During the crisis, investors fled from these countries, preferring to put money in safer havens like the U.K. and Asia Pacific. But as Asian real estate values mature, reaching peak levels and inflicted by regulatory controls and credit tightening, these investors are now searching for the next growth areas."

Read More'Unsustainable' boom in UK property to cool by 2016

The vulnerable PIIGS (Portugal, Italy, Ireland, Greece and Spain) have all enjoyed modest rebounds in the first quarter of 2014 while their bond markets' coupon rates and interest rates have returned to half of what they were during the peak of the financial crisis.

Portugal's gross domestic product grew a revised 0.6 percent in the fourth quarter, accelerating from the previous quarter's 0.3 percent growth, while Spanish economic growth rose an annual 0.5 percent in the first quarter.

Even Greece is expected to post a 0.6 percent increase in economic growth of this year, according to government estimates.

"These countries now offer compelling price discounts and investors are slowly but surely starting to take notice," Han said. "These are the laggard markets, prices are beginning to turn the corner after being in the doldrums for many years."

Read MoreIs China loosening its grip on the property market?

He added that several Asian real-estate developers like Hong Kong's Gaw Capital, Singapore's Ascott and China's Greenland Group have all started to look at Europe to promote geographic spread and diversity in order to fuel revenue growth.

On the opposite side of the spectrum, the report noted Belgium, Norway and Canada are among the cities most at risk of a price correction.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.