HOUSING MARKET WILL RECOVER - EVENTUALLY

A more serious scenario - prices down 25% in 2008/9 - could be followed by a 20% revival in 2020/12.

In prime central London, Savills thinks even a 30-34% surge in prices is perfectly feasible in 2010-2012.

Says Savills' director of research Yolande Barnes: "The whole housing crisis currently unfolding is to do with credit, not affordability.

"Once finance becomes generally available, however, high price growth is almost inevitable once again, given the balance between supply and demand for housing. There is a tendency during a downturn to say that boom can never happen again, as some did in 1990-1, but look what happened from 1994 inwards."

Before that happens, however, Savills is plainly entertaining the possibility of a really serious shock to the economic system.

"Risks of a far more severe correction cannot be ignored because there are parallels to be drawn to the 1974 secondary banking crisis, during which the term 'mortgage rationing' entered the lexicon," the report says.

"If current initiatives by the Government and Bank of England fail to restore the banking system to full working order, then price falls of -10% this year are a realistic prospect, with potential for further falls up to -15% in 2009," Barnes says.

Savills' director Lucian Cook says: "Because the crisis is triggered by reduced access to mortgage finance, this slowdown won't discriminate between different areas.

"For instance, South East and South West England which were flying in mid-2007 have fallen back to a similar level as the Midlands and the North, which never had a big kick in 2007."

The report also ponders the near-unthinkable: even Scotland, which prides itself on usually escaping the property busts which often sink the hapless English, could be in trouble this time, with a 'hard landing' after its 13% price surge in 2007.

"Scotland is about six months behind London and the South, and hasn't so far seen the downturn of the rest of the country," Cook says.

"But that market too now shows price falls, perhaps because Scotland relies partly on demand from England."

"There are really fewer buyers across the country, stock levels are rising and prices have to give."

Jamie Macnab at Savills Edinburgh office acknowledges: "We are a small, proud, inward-looking nation and thought we could avoid the downturn seen in England and around the world.

"But the market has slowed noticeably in the last few weeks, even though we have the benefit of an 'offers over' pricing system when homes go on the market. Offers still exceed this guideline figure, but there is certainly an awful lot more on the market."

Savills still reckons the "super prime" market of £5m-plus homes in London and the Home Counties could defy the odds - by rising 3% during 2008.

:: LATVIANS LOSE OUT IN PROPERTY MARKET TURNAROUND

If you think property owners in Britain have a headache or two, spare a thought for those in Latvia who have seen a breathtaking turnaround in their fortunes.

A year ago Latvia topped the global property league table compiled by agents Knight Frank, with prices soaring by 61% per year.

But by the first quarter of 2008 Latvia had slumped to the bottom of the league - with prices falling by 20%.

That must have introduced "negative equity" with a vengeance to the former Communist bloc - and left some of the party faithful wondering if things weren't better when the comrades knew exactly how to handle any "buy to let" investors.

Prices rose by 21% in Estonia in 2007, but are now falling by nearly 11%.

The third worst turnaround is in Southern Ireland, where prices were rising by 7.6% a year ago - now they're falling 8.8%.

It's not all gloom in Eastern Europe, however: Bulgaria was soaring by 22.6% in the first quarter of 2007, and is still going fairly mad, rising 31.5%.

In second and third place of the current league table are Singapore, rising by 29.9%, and Hong Kong (28.8%). Jersey, amazingly, is rising at 28% today, against only 4.5% a year ago.

Other strong current risers include Russia, in fifth place, rising at 21.7%; Iceland (19.1%); Australia (13.8%) and China (11.7%). Even Spain still shows a rise of 3.8%, despite all that property pain on the Costas.

In a world league table of 34 countries, the UK is 24th: moving from an 11.2% rise in 2007 to a 1.1% rise by the first quarter of 2008.

By Christmas, the UK is likely to show year on year falls approaching 10%.

Liam Bailey at Knight Frank says that the Global House Price Index recorded double figure house price inflation in 35% of the markets surveyed in early 2007; now that is down to just 20%, with no regional pattern evident among the top performers.

Poland is suffering from a rapid rate of apartment construction in recent years - which means houses there now hold their value much better than flats. Could that be the pattern for Britain in the next few years?

A leading developer of urban refurbishment projects in London and major UK provincial centres since the early 1990s has headed to Turkey for its latest project. Galliard Homes, based in Loughton, Essex, has restored many elderly blocks of flats, and converted the former County Hall building on the South Bank, among its London projects.

Last weekend (June 8/9) it launched a scheme of 500 apartments on a hillside location on the Aegean coastline of the Gulf of Gulluk in Turkey. With prices from £65,000 for a one-bedroom flat, Galliard guarantees a return of 6% net income for two years on selected furnished apartments.

INFORMATION: Galliard International (0208 418 3620); Knight Frank (www.knightfrank.co.uk).

:: CAN HOTEL INVESTORS STILL AVOID THE SLUMP?

Experts feared it couldn't work when property developer Johnny Sandelson of Guest Invest started to sell London hotel rooms to investors back in 2004 - with the right to stay free of charge in the room for 52 nights per year, and share rental earned during the rest of the year.

That first scheme - Guesthouse West in Notting Hill - sold out so fast that some owners swiftly banked decent capital gains on resale.

Sandelson says owners who stayed have enjoyed annual capital growth as high as 15%.

Flushed with a major £200m cash injection from HBOS, Sandelson has expanded his concept to include six projects around the capital, totalling nearly 900 rooms.

Several rivals have joined the sector, both in London and in attractive leisure locations like the Cotswold Water Park.

Guest Invest projects include 250 rooms earmarked for the former Whitbread Brewery site in Chiswell Street in the City, the celebrity boutique hotel of Blake's in Roland Gardens, and The Jones, with another 175 rooms planned in Inverness Court, Bayswater.

About half these rooms have sold so far and Sandelson predicts that the group will have all 800 rooms sold within 18 months - "and then we will have hotels operating without the gearing that holds so many hotel groups back," he says.

"In our case, the gearing is the loans held by individual room owners, and individual owners are paying those off within long-term pension and saving plans."

While Sandelson has drawn one unlikely rabbit out of the hat to prove his early critics wrong, he now has to do it all again by demonstrating to his owners that the hotels can attract the necessary flow of guests to ensure rental income can be maintained at high levels.

If it isn't, Guest Invest clients have a headache: rooms cost around £350,000, and many buyers put down a deposit of just 10%.

Hence the idea of the Concierge Club, at all five Guest Hotels, which focuses on emerging talent from London's creative arts scene. The Club intends to offer unique access to a range of creative events, including celebrity occasions like London Fashion Week.

London hotels involved in Johnny Sandelson's projects cost around £200 per night for a double, and may be cheaper at times. But that may look expensive, if the recession slashes the spending power of visitors to the capital.

"People can see the hotels market continues to perform well, despite the downturn, and the cheaper pound is an another incentive to boost tourist visitors," he says.

"The whole world wants a slice of London - but it doesn't necessarily want the commitment of a full-time home. Many of our buyers are aged 45-50 and over, wanting something in London as a piece of real estate."

INFORMATION: Guest Hotels (0207 747 6880 and www.guestinvest.com); to join Concierge Club or find out more information, visit www.Guesthotels.com.

:: BUILDERS ADMIT PLUNGE IN NEW HOME SALES

Faced with the most serious slump in demand for new homes since 1989/92, builders are cutting back output so drastically that the number of new starts approved in March was 52% down on March 2007.

The latest Housing Market Report (HMR) from the Home Builders Federation (HBF) says: "Demand from first-time buyers and investment buyers has been more severely hit than demand from existing home owners.

"More than two-thirds of builders reported lower prices in April, against only 5% reporting a rise. The use of sales incentives continued to expand in April."

John Stewart, director of economic affairs at the HBF who compiled the report, says: "After a dreadful final quarter last year, builders detected tentative signs that the market might be bottoming out in late January and February.

"However reservations began to deteriorate in March, and by May were falling at an alarming rate."

Stewart says that an added problem is that some lenders regard new homes as a higher risk category than the rest of the market, partly because discounts and incentives make actual price paid harder to detect.

"Advances can eventually turn out to have been a much higher percentage of the true net sales value than the lender had originally intended," he adds.

Because of this, lenders have withdrawn from lending on new homes altogether.

"Many limit their exposure to any single housing development, some require valuers to adopt an extremely cautious approach, such as ignoring the new build premium by valuing at second-hand values," Stewart says.

"Advances can eventually turn out to have been a much higher percentage of the true net sales value than the lender had originally intended."

With June 30 an important cut-off in trading for many builders, many buyers with ready cash who are able to complete quickly could secure some bargain deals in the coming weeks.

But builders in general remain fearful of admitting that values of finished properties have fallen far, in case banks get nervy and start calling in their loans.

The HBF is calling for a 0.5% cut in interest rates to prevent a collapse of new homes sales sparking a wider recession through the entire economy.

"We just cannot rely on lessons learned and solutions based on past downturns as this is a completely new situation in which we find ourselves," Stewart says.