INVESTORS beware. Just as buy-to-let owners in London are enjoying the best growth in rents and tenant demand in years, experts have given warning of sharp pain elsewhere in the country in the year ahead.

City analysts who monitor housebuilders say that overbuilding in certain parts of the UK - mainly redeveloped city centres - has left the market vulnerable and are predicting price falls followed by months or years of stagnation.

Kevin Crammack, an analyst with Kaupthing, says that demand for “higher-rise urban schemes” has fallen away and prices are now vulnerable.

Alastair Stewart, an analyst with Dresdner Kleinwort, agrees: “The proportion of new-build properties that are apartments has gone up from 21 per cent in 2000 to 49 per cent in the latest quarter. In various cities in the UK, such as Leeds, Manchester, Ipswich, Norwich, Leicester, Nottingham and Birmingham, there's a vast oversupply.” He says that the “Identikit” nature of the developments, with many dominated by standard one or two-bedroom apartments and built with investors rather than occupiers in mind, has worsened the outlook. “A thousand flats lie empty in Leeds and in some cases are being sold for £100,000 less than what was paid for them.”

Confidence in property prices has slumped since the credit crunch began to restrict the supply of money for mortgages. Many investors have been left exposed by this sudden change, with those most at risk involved in flipping - buying off-plan with a small deposit and then selling on before the building is complete. The rising market has enabled vast profits to be made in this way, but now many owners will find themselves committed to buying properties at prices higher than their current market value.

Mr Stewart says: “If flipping works, you can get huge returns, but you need a liquid secondary market to sell into, and this is where it is coming unstuck. There's a lot of similiarity with the condominium market in Florida, which has collapsed. There are a lot of mini-Floridas around the UK.”

The bleak outlook is particularly bad news for regional prices. Mr Stewart says: “At the tail end of the 1980s and going into the 1990s, there were two or three years of falls followed by stagnation. That was focused very much on London. This time we are going to see lots of localised situations.”

Mr Crammack expects that the “traditional” parts of the market - such as family homes or larger flats - will hold up relatively well, as will apartments in London, as large-scale investors who are inclined to invest only in the capital step into the breach.

Yolande Barnes, the head of research at Savills, says that oversupply remains “highly localised”. Prices of new-build flats have languished for months, particularly in Leeds and Nottingham, but were holding up in Salford. The outlook remains good for those areas, such as Cambridge and Oxford, where land for development had been limited.

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