The search for high capital returns and good rental income is drawing Irish investors into the London property market. The sums involved range from £200,000 or less invested by individuals in apartment purchases to more substantial property acquisitions involving millions of pounds.

And the impetus is the view among investors that they may have missed out on the big gains in equity markets but could yet cash in on rising property prices in London.

The market in the British capital is behind its Irish equivalent and there is a feeling that it has more upside potential. On top of that rentals in London are in general far higher than in Dublin and many investors see the issue of taxation as a grey one.

Many believe they are less likely to be questioned by the Revenue Commissioners on the income used to buy the property or indeed on the level of rental income they receive. One London estate agent sold a £5 million site for residential development to two Irishmen in central London this week and says he has had quite a few enquiries from other smaller investors.

Most London-based estate agents say that Irish interest in properties in the city has risen in recent years, despite the recent movement in the exchange rate. However, the buoyancy reported is not matched by the experience of Irish banks although they have also been seeing a rise in the number of enquiries about British mortgages from Irish-based investors.

Mr Steve Dillworth, marketing manager at Bank of Ireland Home Mortgages in Britain, says the bank has been handling more enquiries this month. Up to two years ago, the volume of business was increasing all the time but it has been level for the past while, he says.

However, with most investors anticipating a fall off in the value of sterling over this year it is beginning to pick up again. The average investor seeking finance from Bank of Ireland for British acquisitions is a property professional - builder, developer, architect.

Mr Wyndham Williams, managing director of mortgages at AIB, said the bank received most enquiries from Irish builders and developers who were inclined to buy property to renovate. "We are not yet seeing much evidence of individual buying but there are certainly a lot of Irish people buying investment property here," he says.

The focus of most Irish interest is on sites in central London in the City and in good West End locations.

Mr Simon Hedley, manager at West End estate agents, Druce & Co, says the volume of Irish people walking into the agency is increasing all the time.

The area in which the agency specialises in - Marylebone - has become very trendy lately with investors such as Terence Conran pouring a lot of money into it. Property prices rose in London last year by around 20 per cent overall, but some of the more high performing central areas recorded increases of 30 per cent or 35 per cent.

Much of the London market fell substantially at the end of the 1980s, leaving many property owners in the trap of negative equity

where their mortgages were greater than the value of the properties they were taken out on. But the market has been recovering over the past two years.

According to Mr Hedley this capital appreciation has attracted a lot of investors from the Far East but also from Ireland.

Some prospective investors simply visit London independently and view potential investment opportunities. There are also several intermediaries who look for London properties for Irish investors. One of these, Mr Joe McPeake, fomerly of Hamilton Osborne King, now runs his own auctioneers which specialises in finding London apartments for Irish investors, particularly in the City.

According to Mr McPeake, Irish investors are now looking to London because of the extent of price rises at home over recent years. He says demand has not been affected by the fall in the value of the pound against sterling. Most people involved have sterling mortgages which are paid for with sterling rental income so it is not really an issue, he says.

One advantage of buying an apartment in London rather than Dublin is the much higher rental income. According to Mr Hedley this is about 9 per cent as well as what investors hope can be significant capital appreciation.

According to Mr McPeake, apartments in good areas provide yields of about 7.5 per cent to 10 per cent. These figures compare to average yield in Dublin of about 5.5 per cent.

However, one problem is the higher level of interest rates in Britain compared to Ireland. And with rates here set to fall by as much as 2 percentage points with the advent of monetary union, this differential will increase.

Nevertheless, according to Mr McPeake, in every development in London there are Irish people actively looking for property.