Despite the ongoing negative sentiment, property investors in Australia have fared better than their share market counterparts, according to a report by RP Data.

Residential properties have increased by 1.46% nationally over the three months to March and achieved an annualised return of around 6%. Despite rising interest rates and inflation fears, RP Data's national research director Tim Lawless said that when compared to the share market, this return is "very positive".

"As an example, during the March quarter, the ASX200 and All Ordinaries dropped 15.5% and 15.8% respectively," he said.

The only capital cities to record a fall in property values were Perth and Canberra, where dwelling values declined by 1% and 0.6% respectively over the quarter. Lawless said that despite the fall, Perth units hold the most expensive median value of any capital city at $464,000.

He added that Adelaide has the most affordable housing with a median value of $419,156, and is still the best performing city in the country.

"The city recorded the strongest gains in the market, with values increasing by 23.4% over the year to March 2008. Adelaide appears to have largely shrugged off the recent rate rises with consistent growth across all its regions," he said.

Brisbane recorded growth of around 20%, while Melbourne growth rates - though still healthy on an annual basis - showed a considerable slowing in quarterly figures.

Sydney values increased by around 1% for houses and units over the first quarter of 2008 which, according to Lawless, isn't a bad result, considering the impact that affordability pressures have already had on the market. "Many of the city's prestige areas are starting to show weakness, with markets in the inner city, eastern suburbs, Lower North Shore and Northern Beaches all recording flat to slightly negative capital growth," he said.

On a positive note for investors, Rismark International's Dr Matthew Hardman said that with interest rates now at a 12-year high of 9.35%, the likelihood of another rate rise is reduced.

He added that another rise in interest rates would certainly cool the market further, causing more price falls of up to 5% in the mortgage belts of Sydney, Melbourne and Perth. "On the other hand, a constant interest rate environment would likely put a floor under many areas which have seen significant value falls. If rates remain stable over the next 12 months, we'd expect national dwelling values to remain in positive growth territory," Hardman said.