The effect of foreign investors on Australia’s property prices has been over exaggerated according to a new report.

Propell’s Foreign Investment in Australian Real Estate report claims concerns foreign buyers, especially those from China, are driving up prices are misguided with off-shore money likely resulting in only a small increase for prices of specific properties.

“Foreign buyers target specific property ranges: mostly inner city apartments and expensive properties in Sydney and Melbourne, with Brisbane also starting to attract interest,” the report says.

“In those specific markets, the impact on prices is likely to be measurable, but our analysis suggests that they have added around 5% to values of prestige property, in preferred suburbs only.”

Perhaps driven by a number of recent high profile purchases and breaches of Foreign Investment Review Board (FIRB) rules by foreign investors in Sydney, offshore buyers have been identified as a major reason for its surge in property prices, however the Propell report believes other factors are responsible.

“If price increases were mainly the result of foreign buyer interest, then we would have expected Melbourne prices to increase at a rate closer to that of Sydney,” the report says

“The fact that Sydney prices have increased at double the rate of Melbourne shows that most of the increase is due to the imbalance between supply and demand in Sydney.”

According to analysis by Propell, 43% of all FIRB applications received in 2014 were for Victorian properties, while only 33% were for properties in NSW.