Melbourne has overtaken Sydney as the number one destination for Australian tourists, according to a survey.

Overseas investors are pouring money into commercial property in Melbourne.

THE virtues of investing directly into property by asset acquisitions or indirectly through real estate investment trusts have been brought to the fore with two reports indicating that bricks and mortar win every time.

But size does matter, with high net-worth investors able and willing to buy directly, while smaller investor err towards the REIT sector.

According to Emerging Trends in Real Estate Asia Pacific 2012, from PricewaterhouseCoopers and the Urban Land Institute, overseas investors are pouring cash into the Sydney and Melbourne commercial property market through acquisition of office blocks and shopping centres.

PwC real estate leader James Dunning said the report indicated Sydney was one of the lowest-risk markets in the Asia Pacific region. ''Sydney has jumped from seventh position to third-most favourable investment destination, behind only Singapore and Shanghai. Melbourne has also improved, moving from ninth to seventh spot.

''Melbourne is also one of the region's most important markets, despite its construction levels cooling. For both cities, prospects over the next year are cautiously optimistic.''

In contrast, the indirect Australian REIT sector's recovery from the global financial crisis continues to be hampered by international economic uncertainty, short-term debt maturity and unsustainable gearing levels.

According to Ed Psaltis, head of property and REIT Group at PKF and author of the REIT Monitor for 2011, these factors continue to affect investor confidence, resulting in many REITs trading at discounts to their net tangible assets, further segmenting the sector.

''Despite considerable efforts … to extend debt maturity and reduce gearing levels, both factors remain far too high,'' he said.