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BRITISH house prices could rise swiftly, blowing away hopes of a slow, steady recovery, a leading local estate agency has forecast.

  Sharp price rises could result from housing supply not keeping up with changing patterns in demand, says the spring issue of First Pacific Davies-Savills Quarterly Residential Research Bulletin.

  Housing is becoming more affordable to Britons, but they are also becoming more ''discriminating'' in their tastes, the report says.

  High-earning first-time buyers are ignoring cheaper, one-bedroom flats and studios for larger, more expensive premises.

  However, while there is a plentiful supply of cheaper properties, ''quality'' housing stock is lacking.

  This will ensure that the prices for properties at the bottom of the range remain stagnant, and for more desirable residences, will rise sharply.

  ''The biggest danger now would be that affordability remains high, while supply and demand inequalities remain,'' the report says.

  ''The housing market would then be like a time bomb waiting to explode as soon as the structural consequences of qualitative supply and demand mismatch could no longer be contained.''   House prices could increase by 19 per cent this year and 15 per cent next year, but the properties will remain affordable, setting the scene for a price explosion in the future, the report says.

    House prices could rise 40 per cent without the ''unprecedentedly high'' affordability levels ''dropping too far'', it says.

  Price rises were concentrated at the top end of the market in the first three months of this year, but would gradually inspire confidence further down the housing ladder, it says.

  FPD-Savills' assertion is backed by evidence from London estate agent Winkworth and The Times newspaper.

  They said prices had risen fastest in the capital's wealthy areas of Kensington, Chelsea, Knightsbridge and Notting Hill, where capital values rose by up to 15 per cent in the first half of the year.

  The average three-bedroom house in Kensington now costs GBP650,000 (about HK$7.73 million) and in Knightsbridge GBP750,000.

  However, in the working-class London district of Catford, prices have remained static since the start of the year. An average three-bedroom house there will cost GBP105,000.

  ''Discretionary vendors are likely to remain reluctant to sell until prices reach higher levels,'' the report says.

  ''The consequent lack of supply in the face of increased confidence and more demand will force a ''bounce back'' in values.''   But Barry Lea, Hong Kong regional director at private banker Hill Samuel, said: ''I cannot see growth [in house prices], like we saw in early 1980s, coming back in 1990s.

  ''The 1990s compared to the 1980s is the decade of nesting, not investing.''   However, Mr Lea said London was ''not a bad option'' for investors.

  Gross yields for prime residential properties in central London were seven per cent to eight per cent over the past 25 years, and were producing capital gains of five per cent to 10 per cent per year, he said.

  Higher yields of 12 per cent to 15 per cent could be found outside London, in areas such as Avon and Sussex, but these properties were less marketable.

  British properties would appear cheap to Hong Kong buyers comparing prices with the territory's market, he said.

  A prime home in central London was a third of the price of a Hong Kong residence and, in London's secondary residential areas, such as the Docklands, Wimbledon and Battersea, homes were a quarter of the price.



Britain may face sharp price rise, report says