Asia’s property markets are careering towards a correction as domestic investors continue to pile into the asset class, according to brokerage Jones Lang LaSalle.

Driven by interest rates at historic lows, a total of $57 billion has been invested into Asian real estate this year in the nine months to the end of September.

Almost all of it has come from domestic investors, who have been willing to take on greater risk and accept yields that aren’t attractive to international investors. Asia was a net exporter of real-estate capital in the first half of the year, as North American and European investors retreated to their home markets.

“Yields are compressing and prices are rising quickly on the back of future rent growth expectations,” says Stuart Crow, the head of Asia-Pacific capital markets at Jones Lang LaSalle.

“I don’t see bubbles forming, but I do see selected markets running ahead of themselves as people compete for limited numbers of quality grade assets.”

Crow suggests that rising levels of liquidity among private individuals and institutions in the region has helped to facilitate greater comfort with local markets and perceived risks associated with them. But he dismisses the ‘b’ word.

“Bubble is probably too strong a word, given it suggests it may burst at some stage and prices will fall sharply,” adds Crow. “I can’t see this happening, but inevitably prices will correct.”

Singapore has seen a surge in interest, with direct property purchases up a startling 500% in the third quarter year-on-year. Meanwhile, Malaysia is up 76% and Australia 42% over the same period.

Activity in the city-state has been driven by a series of landmark deals, with the city accounting for three of the region’s five largest property deals in the third quarter.

The biggest was a $642 million move in August by Singapore property developer Overseas Union Enterprise to buy DBS Towers One and Two from the Goldman Sachs Real Estate Fund.

Goldman Sachs was again the seller in September, offloading Chevron House for $404 million to German property fund manager Deka Immobilien. Interestingly, German investors have been the exception to the rule, becoming increasingly active in Asia, and this is a trend market-watchers expect to continue in 2011.

The other major deal in Singapore was an entirely local affair, with the Singapore CapitaCommercial Trust selling the StarHub Centre in July for $280 million in an en bloc sale to FCL Crystal, a subsidiary of the Singapore developer and mall operator Frasers Centrepoint.

A deal each in Japan and China rounded out the top five sales in the third quarter.

Singapore and Australia are seen as attractive targets for listed property funds owing to underlying economic strength and rising rents. Singapore, in particular, is flush with new office space, but investors are confident that there is strong demand despite the new supply.

On a global level, more money is forecast to flow into real estate next year amid expectations of rising risk appetite.

This month brokerage DTZ estimated there would be $281 billion in capital worldwide targeting direct real estate investments in 2011, up 22% from its previous forecast. But it’s the US that is seeing its available capital increase the fastest, up 54% since the end of last year to $97 billion.

Europe’s expected allocation is unchanged but remains the biggest of the three major regions, at $112 billion. Asia is the third-largest segment, at $71 billion. Its forecast is up 22% from the level DTZ expected at the end of 2009.

DTZ states that the US is the most attractive market in the world right now, based on analysis of the brokerage’s Fair Value Index. Asia is still more attractive than Europe, according to the index, and more than half the Asian markets are “hot”, or attractive in terms of pricing compared with fair value.

But the brokerage also indicated that the situation could change as prices are driven higher by strong domestic demand.

“As a whole, Asia-Pacific is expected to deliver strong income growth in the medium term and it offers attractive yields at current pricing,” forecasting experts Ben Burston and Zubaer Mahboob wrote.

“Investors should make use of this buying opportunity. As capital values start to rise, the degree of under-pricing will shrink, and with it, the buying window.”