THE GOVERNMENT could buy houses or provide more “soft loans” for social housing in a bid to kick-start the property market and shore up house prices, according to a senior investment adviser at investment bank Merrill Lynch.

Gary Dugan, chief investment adviser at Merrill’s wealth management business for Europe, the Middle East and Africa, said house prices were “in free fall” in Ireland, the UK and the US, and governments may have to buy houses or offer more social housing loans to support the property sectors.

“Politically it will look good, so I don’t think it should be underestimated as a possibility.”

Speaking on a visit to Dublin last Friday, Mr Dugan advised Irish investors to “give up” on property and to “remain very, very cautious” this year.

“We keep telling people that this is not a V-shaped recovery. It is a recovery that is going to be over a number of years, and therefore you don’t want to be too exposed to risky assets. So don’t jump back into equities or property.”

Mr Dugan said there would be a further 15 per cent fall in house prices in Ireland and that the resetting of economic activity and property prices had “at least another year or two to go”.

He said the economy has “to reset itself”.

“It had such a frothy feel to it. I think everyone was aware of that. They just hoped it would never come home to roost.”

Mr Dugan said that he was “hopeful” the European Central Bank would cut interest rates this Thursday, but that it would cut rates by a half point in February and a further half point in March or April.