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The residential property market appears to have bottomed out and is set for a "mild cyclical recovery" over the next 12 months" says AMP Capital Investors chief economist Shane Oliver.

Oliver anticipates only short-term gains in property prices in the range of 5% to 7% over this period as "buyers remain cautious about taking on excessive debt, particularly as job insecurity remains high".

But he expects the property market to outperform both the bond market and what's available through cash deposits - a reverse of the performance of these markets over the past five years.

Shares, Oliver says, are the most attractive asset class "offering relatively attractive starting point dividend yields of around 5.7% with franking credits added in" though he warns investors against presuming a "smooth run" for shares in 2013.

But term deposit rates have fallen from as high as 8% a few years ago to 4% and continue to fall while Australian 10 year government bond yields have fallen from 6.3% to currently 3.5%

In comparison, Oliver says house and apartment yields are running around 3.7% and 4.8% respectively, which are well up from their lows last decade.

Despite offering a better return than cash or bonds, Oliver says capital growth in residential real estate is likely to be constrained over the next five to 10 years "by still very high property prices relative to incomes and rents and house prices still above their longer term trends".

"This suggests that a cyclical rebound in real estate prices over the next year should be seen as part of a broad range bound market for property prices in real terms as the market continues to work off the excesses that built up over the property boom that started in the mid 1990s and continued into last decade.

"Of course, good quality properties in sought after locations will do well, but the medium term back drop for property returns is likely to remain constrained, albeit better than that from cash and bonds," he says.

Oliver says there are two main risks to his forecasts.

The main downside risk to property is a hard landing in China, a risk he says is receding while the upside risk is that "the old housing bubble is reignited by the latest collapse in mortgage rates".

"Again this seems unlikely though given Australians' more cautious approach to debt since the GFC," he says.