Property investment in Ireland remains robust despite a continuous drop in rental rates throughout the State, according to lenders and estate agents.

A survey published by the Institute of Professional Auctioneers and Valuers (IPAV) this week shows that rental prices have fallen by an average of about 3 per cent over last year, the third year in a row that prices have fallen. Rents in Dublin have fallen by up to 7 per cent.

This has not deterred investors in the buy-to-let market, however, who still account for over 20 per cent of the market, according to Ms Marian Finnegan of Sherry Fitzgerald.

"The market is still very strong, we've noticed no let-up in demand or interest. People aren't being scared off by falling rates," she said.

A spokesman for Permanent TSB said most people are looking at the medium- to long-term view.

"Traditionally this has been viewed as a sound investment, and although the large capital gains achieved by some people over the last decade may not continue into the future, any softening of rents won't put people off," he said.

Mr Turlough Crowe at AIB said that although there had been a slight fallback in interest over the last two months among buy-to-let investors, this was probably just a seasonal trough and shouldn't be seen as a trend.

"Compared to last summer, there has been a drop, yes, but 2003 was an unusual year in that there was a lot of pent-up demand overflowing from the previous year," he said. "Funds are busy, demand is strong, and it is too early to tell whether any slight dip of late will translate into a long-term trend."

IPAV surveyed all their members practising in the country in July 2004. The drop in prices was most significant in the Dublin area, with a fall of up to 7 per cent for a second-hand, three-bed semi-detached house. Rents for new one-bed apartments and townhouses in Dublin declined by just 3 per cent.

Merrion Stockbrokers calculate on the basis of the figures that the gross rental yield on property is now around 4 per cent. Despite this reasonably strong return, they believe that rising interest rates and increased supply will cut house price growth to zero next year. In terms of prices, the IPAV survey estimates that new house prices have risen 8 per cent over the past year, with a 6 per cent increase in second-hand houses.