Invest BelfastApartment prices in the city rose by 28 per cent last year but while estate agents celebrate some commentators says that it won't last, writes Carissa Casey

Apartment prices in Belfast shot up an impressive 28 per cent last year, beating the overall property market by a full 3 per centage points, according to a recent Bank of Ireland/University of Ulster House Price Index.

The news was manna to local property developers who in the last year have embarked on a series of up-market, high profile apartment developments across the city. But the recent boom is probably a temporary phenomenon and most commentators are predicting a more sedate 5 to 10 per cent growth rate over the next few years. Indeed, according to some, there are worrisome signs that the market for those high-end developments is already over heating.

After several years of relative stagnation, the Belfast apartment market sprang to life again in 2005. In February, plans were unveiled for what was billed as "the tallest and most impressive landmark Belfast has ever known".

The Obel building on the banks of the Lagan will not be completed until 2008 but in a single weekend all 180 apartments were sold off plans. It was a first for the Belfast property market and a signal that the apartment glut which occurred in 2000 had worked its way out of the system.

Back then similar high profile, high-end developments were left virtually unoccupied as investors failed to find tenants. For several years there was little or no capital appreciation on the properties.

But since the Obel launch last year a rash of new developments has been announced.

There's the highly ambitious redevelopment of the old shipyards into the Titanic Quarter. Planning permission has already been granted for 400 apartments there, with many more likely. The new Victoria Square development,just off the city's main shopping thoroughfare, will feature apartments along with its high profile retail tenants. The old Ormeau Bakery is being remodelled into apartments and the façade features a giant billboard of Diarmuid Gavin who will be designing the grounds.

In estate agents across the city, glossy brochures jammed with architects' drawings of sleek new buildings extol the benefits of city living to the would-be buyer.

The problem is that Belfast has been here before and many of the problems which caused the glut of apartments in 2000 have not been solved, according to Alan Bridle, a senior research analyst with Bank of Ireland.

According to Bridle, apartments priced at the low end of the market, around £100,000, are a relatively safe bet. In the last few years there have been several of these type of developments around north and west Belfast where there is still a growing population.

Apartments in these areas typically cost less than houses which appeals to first-time buyers. At that price point investors can also comfortably rent to the steady stream of immigrant workers arriving in Northern Ireland from the EU accession countries. But the other end of the market - apartments priced over £200,000 - is already overheating, says Bridle.

"We learnt a few years ago that the market for high priced, exclusive accommodation in Northern Ireland was small and finite," he says. "We don't have a large vibrant private sector economy so we don't have a large population of relatively affluent private sector employees who might want these places," he says.

The Northern Ireland economy is famously fed primarily by the public sector which accounts for two thirds of its GDP. The annual subvention from the British exchequer is in the region of £6 billion.

Last year the government embarked on a major spending review and cutbacks are inevitable. Domestic rates have just been increased and are likely to increase further over the next few years. Water charges are to be introduced in 2007.

The jobs outlook is also less than encouraging. It emerged last week that the main job-creating agency, invest Northern Ireland, managed to lose more jobs than it created in its first three years of operation.

The agency's chief, Leslie Morrison, blamed structural weaknesses which resulted in low economic productivity, low levels of entrepreneurship and low rates of innovation.

Many private sector employees are still dependent on traditional industries such as heavy engineering or textiles, both of which are vulnerable to international competition.

"I don't think we're in any type of scenario where the local economy is going to fall off the cliff but you will see a belt tightening," says Bridle.

If there weren't enough affluent buyers or indeed tenants for up-market developments six years ago, it is unlikely that, given present conditions, there'll be a sudden surge of them over the coming years.

Tom McClelland of the Royal Institute of Chartered Surveyors also sounds a cautionary note on apartment prices. "In the medium term there are definite warning signs. At the moment we have a lot of new road building which is boosting things but there is clearly a big commitment to cut back on public spending and that's going to affect people's pockets."

Needless to say developers and estate agents are far more optimistic.

Adam Armstrong of Mar Properties, which is involved in the Obel building, claims that the Belfast apartment market is "red hot". "There aren't enough apartments coming on stream in the next two years and any that are have sold immediately," he says.

He points to the fact that for several years after the problems in 2000 there was relatively little development and the recent spurt is simply a catch-up to satisfy pent-up demand.

Thomas Doherty of the estate agent Eric Cairns,which is selling many of the new developments, is equally bullish. The developments he is involved in - Obel, Victoria Place and several others across the city - are selling comfortably, many off plans, to both owner occupiers and investors, he says.

"If we have anything to rent in the city centre it rents very quickly. People must furnish to a good standard and be realistic about the rent. I also think we're talking more realistic growth levels than we have had in the last year. We're looking at between 10-15per cent."