David Salvi, director of estate agency Hurford Salvi Carr, said central London had 30 per cent fewer buyers in the first quarter of this year compared with the same period last year. '[Job losses] confirm the reality for London of the current banking crisis and the turbulent stock market which leads to wider instability.'

Lucian Cook, director of Savills Research, said prime central London property prices fell 2 per cent in the final quarter of last year, partly because there were fewer City of London buyers. Kensington, Chelsea, Knightsbridge, Mayfair and Belgravia are the districts traditionally targeted by bankers, traders and hedge fund managers.

The new GBP30,000 (HK$470,000) tax on non-domiciled foreign residents meant fewer overseas businessmen and professionals would buy in the British capital, Mr Cook said. 'The city's employment and bonus expectations will together with the reaction of non-doms determine how the prime London property market fares in 2008. We expect small falls in values in the first half of the year.

'The key question is how these two issues will affect demand in the back end of the year.'

Phil Tennant, London regional sales manager at estate agents Hamptons International, said the lower end of the prime residential sales market was vulnerable.

'Impressive flats in the GBP1 million to GBP2 million band in prime areas are the most susceptible to changes in demand from the City.

'This seems to be the band where prospective buyers rarely have to move, but would do so if they felt confident about life.'

Some City property investors might struggle, said Simon Umfreville, director of property finder, Chesterton Private Clients. 'Returns on buy-to-lets have been very poor for the last two or three years. Many of these are owned by City people who have been able to fund any shortfall. This may change, resulting in an oversupply in this sector.'

Richard Donnell, director of research at housing intelligence business, Hometrack, said the job cuts were probably already priced into the prime market. The mainstream property market would be affected if less well paid backroom staff became unemployed, he said.

'I think this will all feed into and re-enforce the general slowdown in the housing market.'

Mr Umfreville said that despite reduced demand in the City, a shortage of homes meant a property market collapse would be avoided.

'It may well take some of the craziness of the last few years away,' he said. 'The real fact is that London is a very small town for which demand has for years outweighed supply.'

Mr Salvi said the downturn provided opportunities for overseas buyers priced out of the market during the past three years. He expected a growing number of estate agents and developers to market their properties abroad over the next 18 months.