Opportunities exist, but investing in Liverpool comes with a health warning. Edel Morgan finds opinion decidedly mixed about whether to invest or not

Is Liverpool city an investment hot spot on the brink of great prosperity and regeneration as it prepares to be the Capital of Culture in 2008? Or is it a dilapidated, underdeveloped city without the population to sustain a property boom?

Well, it depends on who you ask.

It's hard to ignore the widespread dereliction as you travel from Liverpool John Lennon Airport into the city centre. Boarded up council houses, crumbling but beautiful period buildings side-by-side with ugly, rundown modern shed-like structures.

When you hit the city centre, however, there are a few chinks of light. Albert Dock, the most sought after address in Liverpool by young professionals, is a hugely successful £100 million conversion of listed mid-19th century cargo warehouses into exclusive shops, bars, restaurants, pavement cafés and apartments. Not unlike Dublin's IFSC in appearance, it also has a Tate Gallery, a Beatles exhibition and a maritime museum and attracts an estimated 3.5 million people in the ABC1 group per year, a million of which are categorised as "big spenders".

The Tea Factory in the studenty Ropewalks area of the city won an award of merit at the UNESCO Asia-Pacific Heritage 2001 Awards for its impressive conversion of a dilapidated tea factory into a luxury hotel complex. Beetham Plaza, another award winning mixed use development, is a transformation of a redundant 1960s nondescript office building - which ironically housed Liverpool City Council's planning department for many years. Apartments at Beetham Plaza sell for between £100,000 (€149,003) and £500,000 (€744,978).

Cranes hover over the skyline and there is much regeneration either underway or in the pipeline, particularly along the waterfront. So why do the sceptics still not see Liverpool as a good place to invest?

"It is behind other northern cities in the cycle of development," says Peter Bastable of Simply Mortgages. "It is third in the table behind Leeds and Manchester and much of the redevelopment is in a narrow band along the waterfront. There are probably premium prices achieved along the waterfront, but what is there beyond that?"

He believes that Liverpool will take a long time to shrug off the years of neglect to catch up with other northern cities. "The other side of the theory is that, if you buy at lower prices and sit tight, in 10 years you might make money," says Mr Bastable. "But, in my experience, investors don't usually plan to hold on to properties for that long. They are looking to make money on it within five years or less."

The current spate of prolific apartment building in Liverpool - with an estimated 4,000 new apartments and houses predicted to come on stream this year - may lead to "the Manchester situation", says Mr Bastable, "where you buy an apartment for £160,000 (€238,115) and by the time its built and you want to sell it you are competing with a better product coming on stream and you can't sell it for £130,000 (€193,462)".

Snapping up what may be perceived as a good bargain could be a false economy, he warns. "There are people who think if they get two one-beds for £60,000-£70,000 (€89,411-€104,324), they will get a good return but will they? The population is quite small and there is a danger of oversupply. Although the city is pretty run down, investors here often buy there because it's in the UK and Liverpool is associated with Irishness and it's an easy trip over by air or the ferry."

Any argument that the impending capital of culture status in 2008 will prove a massive boost to the city does not wash. "Investors should be careful, In Manchester in the mid-1990s investors bought thinking the Commonwealth Games in 2002 would be a great boon to the city, but they came and went and made zero impact. I wouldn't buy there so I would never advise anyone else to buy there either."

Although one of the most historic and architecturally distinguished cities in Europe - St George's Hall on Lime Street is regarded as the finest Greco-Roman building in Europe and it boasts more Georgian buildings than Bath - many of its fine buildings languish in disrepair.

Liverpool Council has urged the British government to give it tougher powers to save listed buildings from neglect. Planning chiefs say their hands are tied by a "very difficult and convoluted process" of forcibly buying at-risk buildings from private owners.

But despite its problems, the mood of the city is buoyant and upbeat and this is gaining the attention of international companies. Surveys carried out by Dun & Bradstreet, Grant Thornton and Experian say Liverpool and Merseyside are increasingly perceived as attractive investment locations. Liverpool Vision is a 20-year regeneration programme funded to the tune of £35 million (€52 million) by the EU and £25 million (€37 million) by the city council. The money is being pumped into upgrading the city's transport infrastructure, and expanding its commercial district and residential development in the city centre.

There are hopes that city of culture status will banish the effects of post-industrialisation and that Liverpool's consequent image problem by improving public awareness of its cultural vibrancy.

Wilkinson Eyre, who designed Newcastle's Millennium Bridge, has been chosen to transform Liverpool's King's Docks with a £100 million concert arena and conference centre.

There are plans for a 35-acre mixed development on Prince's Dock and a scheme of 300 apartments is to turn a former rice warehouse in one of the city centre's last remaining industrial areas on a site near the historic Grade II listed Baltic Fleet pub at Wapping which will consist of a six-storey development.

Chris Prescott of King Sturge says his company has received phone calls from Irish investors and developers looking for sites to build residential units. He says the city centre "renaissance" has meant that areas you "wouldn't touch with a barge pole before" now have values that "are going through the roof".

The Liverpool Daily Post reported that Irish investors have poured millions of euros into the property market with "consortia and major investors buying up a major slice of exclusive apartments".

The initial attraction was good sea and air travel links and prices 35-40 per cent cheaper than Manchester. According to James Carroll of Investor First, the market has been over hyped since the announcement that it won the city of culture competition last April.

"Everyone is rushing in and driving prices through the roof. Apartments that were £210 per sq ft are now £230-240 per sq ft. I don't believe that is sustainable if you look at the bands of rent. At the highest tier in Manchester young professionals are paying £900 for a two-bed in a good location and there is plenty of demand, but in Liverpool the top rent is £650-700."

According to Carroll, if investors want a 6 per cent yield they are going to struggle if the price is over £180 per sq ft.

Carroll believes it is possible to find value with the right property in the right location but urges caution: "Parts of Liverpool are like Dresden after the war. You walk around and think 'is this for real?' There are more properties for sale than not. That said, the population of Liverpool city centre has grown from 3,000-4,000 to 12,000 in recent years and a lot of regeneration is going on which will have an effect."

There are 500 new hotel rooms being built in the city, and there are loads of Irish investors still buying there, but they are going to struggle unless they buy in a prestige location. Of all the northern cities, Liverpool is less on the agenda. He reckons there is still good value to be hand in undersubscribed areas and suburbs like Sefton Park, where there are beautiful buildings that are let to the trendy set.

"Elsewhere you have to look around. Duke Street, for example, is back-to-back apartment blocks, not unlike the area around Heuston Station.Those who bought there initially will have experienced capital growth but will be competing with a better product coming on stream and struggle with rents. But 100 yards past the end of Duke Street is a very attractive development that is in demand. Look closely and you will find the opportunities and be selective when the masses rush in."