Trouble up north as apartment prices slump

Manchester has experienced an even bigger apartment boom, with property investors again leading the way. A decade ago, there were just a couple of thousand people living in the city centre, a number that has already swelled to 15,000 and is forecast to reach 25,000 by 2010. But the vast majority of these new apartments were also bought by investors of one kind or another and many are now trying to sell. On the Rightmove website there are 750 apartments for sale in the Manchester 1 postcode alone.

The 47-storey Beetham Tower, Manchester's tallest building, is a case in point. When it was first released to the market in 2005, the apartments were snapped up despite prices that set new records. But of the 220 apartments, many are now back on the market. One agent alone, Shepherd Gilmour, had 45 available on its books at the latest count. Director Laura Smith says they are mainly being sold by investors: 'It's the same with most of the rental market. Interest rates went up and the yields don't stack up any more. People who bought were also relying on capital growth, which hasn't happened.'

A surge in rental demand has again proved the saviour. Even if owners can't sell, they can usually find a tenant who will pay most of the mortgage, and some developers are reported to be letting out new properties rather than selling.

John Broadbent, head of residential development at the Manchester office of Knight Frank, believes that the current slowdown is temporary and that demand for property in the city centre will grow, not least because of the stress of commuting. 'There are 300,000 people who work full- or part-time in the city centre every day. Many have to cope with terrible congestion - it takes me one-and-a-half hours to get in from Prestbury in Cheshire,' he points out.

And so to Liverpool, currently a European Capital of Culture, where the apartment boom was slower to get under way. Liverpool had, after all, been in decline for decades until the latest regeneration effort got under way.

In December, the Liverpool Daily Post reported that a repossessed apartment in Liverpool's Beetham Tower - a scheme by the same developer as the one in Manchester - had been sold at auction for £101,000, less than half the £206,500 it had fetched in May 2004.

James Kersh, of agents and auctioneers Sutton Kersh, says prices in Liverpool have been resilient so far. 'That may be because Liverpool is still cheap compared with the market as a whole.' And investors are still buying in Liverpool, he adds, though no longer the inexperienced ones who expected to make a quick profit. Quality developments are shining through, he says, a good example being the Unity Building beside Liverpool's Three Graces, where two penthouse apartments have recently been sold for £1.5m apiece.

In all three cities, the people who have really had their fingers burned are those who have paid too much to buy in second-string developments on the strength of unrealistic rental and price expectations. It looks as if most are hanging on - but a serious downturn in the market could still prove bloody.