These days it’s cheaper to buy a home in the playground of New York’s rich and famous, The Hamptons, than it is to buy in most Australian capital cities. Home prices in New York’s beachside retreat fell 13% last year, and are expected to tank again this year. Today, the median sale price in The Hamptons, the home of Madonna and Lady Gaga, is US$780,000, which equates to $726,828 in Australian dollars. For this money, you’d be lucky to pick up a fibro cottage in Brisbane or a pokey townhouse in Newtown.

Today, the best property bargains are found in ‘old world’ countries like Britain, the US and Europe. Property prices have been trending lower for almost five years. The average house price in the north east of England, for example, has fallen below £100,000 – the lowest level in eight years. Average prices in Ireland are down a frightening 58% since the bubble burst, with some properties in Dublin losing as much as 61% of their 2007 value. The average cost of an Irish home is now €165,000, while prices have fallen to €198,260 in Dublin.

House prices in the UK have sunk by some 20%, with the exception of prime London property, which has held firm. Spanish house prices have dropped by 24% since their 2007 peak, and are expected to fall a further 35 to 40% over a ten-year period as high unemployment and low population growth suppress demand.

Interestingly, the divide between the ‘old world’ and ‘new world’ has been stark. While property markets in ‘old world’ countries like Spain and parts of Britain have capitulated, property markets across China, India, Singapore and Hong Kong have soared. Australian property too has defied all odds to advance higher since the global financial crisis hit.

Today it’s cheaper to buy a chateau in France than a luxury unit in Singapore, Hong Kong and even Mumbai, India. Today you get more bang for your buck in The Hamptons than in Newtown, Sydney.

Property in Singapore has soared some 70% since 2006. Real estate has tripled in most cities across China. Hong Kong property is at 13-year highs. In the second quarter of 2010, prices in Asia were rising at an average rate of 23.6% a year.

It has been an incredible run up, but the cracks in the market are starting to appear. According to Knight Frank Prime Global Cities Index, luxury house prices are falling fastest in Asia. As you can see in the table below, European property markets were poor performers last year, rising just 1.6%, but were a better bet than most Asian markets, which fell on average by 1%.

Source: Prime Global Cities Index, Knight Frank

A worrying trend in the table below is the quickening pace of price falls across Asia in the final three months of last year. Singapore, Shanghai and Paris experienced price drops of around 4%. Over the year, Singapore property declined by 6.8%. Meanwhile prices of luxury homes in Mumbai, India fell a whopping 18%.

Source: Prime Global Cities Index, Knight Frank 

The bad news is that analysts are expecting further falls. Prices in Hong Kong are tipped by some to fall by 25% come 2013. Singapore property could plunge by 30% over the next three years (the introduction of stamp duty on purchases by foreign buyers will certainly quell demand), and China could see property prices sliced by as much as 50%.

So where does that leave Australia?

In tune with the rest of Asia, Australian property prices are edging lower.  Average home prices are now 4.8% lower than a year ago. Brisbane is one of the hardest hit, with prices falling 5.2% in just 12 months.

The question is, how low can Aussie property go?

There is a growing list of doomsayers fearing the worst for Aussie property. US economist Harry Dent predicts a 60% drop, bringing prices back down to where they were in mid-2000. Australian economist Steve Keen anticipates price falls in the order of 40% over the next ten to fifteen years, while US real estate analyst Jordan Wirst reckons Australia is headed for a property bloodbath as the global downturn spreads to China and beyond. He sees prices retreating by 60% within five years.

A 60% price drop would be catastrophic, and would put Australia on par with Ireland. For this to happen, a number of events would have to play out simultaneously.

The fate of Aussie property hinges on employment, sentiment and essentially what happens to the mining sector. A collapse in either one of these variables would push prices lower; a collapse in all variables at once, however, could push the market over the edge.

Last year was the weakest year for the job market since the recession in the early 1990s. Unemployment, currently at 5.2%, is expected to edge higher – and already companies including Westpac and ANZ, BHP, Holden, Qantas and Toyota are laying off workers.

The International Monetary Fund (IMF) has forewarned Australia’s biggest banks to stash cash away for a property slowdown.

So where does that leave Mr and Mrs homeowner? For many Australians with mortgage payments well under control, a falling property market will simply reduce their wealth on paper. A property slowdown is only worrying for anyone that's highly geared, negatively geared, and/or juggling multiple properties.

Although a 60% drop in property prices seems far fetched, investors probably need to prepare for price declines over the coming five years. A slowdown in the mining sector, depressed spending and subdued business conditions due to the high Australian dollar will most likely result in unemployment ticking higher. Higher levels of unemployment will counter any positive effects from any interest rate falls over the coming months and years.

With two-bedroom shacks in Mount Druitt, Sydney going for more than $500,000, the market is looking perilously toppy. So if you urgently need to sell your property for financial reasons, you may want to consider cutting your sale price sooner rather than later; because if a flood of properties hit the market, you simply may not be able to offload it no matter the price.