Prices fuelled by Eastern promise : THE HOUSES : DOCKLANDS A SPECIAL RE PORT

House prices have been stood on their head in Docklands recently. This does not mean a sudden reversal of the calamitous decline that has taken place since the area led the UK into the property boom, however. Apart from a few hot areas, values hav e remained fairly stable.

That is not due to any lack of demand. When Galliard Homes sold off a tranche of Burrell's Wharf, there were queues around the block and the whole lot went in one weekend. And that is part of the problem for existing owners, who make up the bulk of property in Docklands.

Builders normally follow trends set by second-hand homes, calculating local values then adding a premium of 10 per cent or more for their property. But a great deal of new-build has been finished over the last year, and the process has been reversed.

Builders have sold at bargain prices because they have often picked up land cheaply. Ordinary owners have to follow.

"If you can buy a new apartment for £70,000, then why pay that for second-hand?" says Rick Folkes of Chestertons Residential.

This dampening impact on prices should ease in 1995 because new property is running out. The latest phases of building stimulated by these rapid sales will probably return to the traditional 10 per cent premium.

"That means second-hand property can appreciate," says Folkes. But don't expect any price explosion, he adds.

Some owners will see a lot more uplift than others. Overseas investors - particularly from Hong Kong - are swarming into Docklands because they see London as cheap compared with other world cities and Docklands in particular as a bargain.

"They are attracted by high yields of between 8 and 12 per cent, the wide selection of property, and assets such as underground parking and water views," says Tom Farrelly, co-owner of the Surrey Quays Winkworth office.

Many big builders take their housing straight to Hong Kong, where they can sell at inflated prices, he says. That premium - as much as 30 per cent above local levels - must feed through to the rest of the market.

But ordinary owners aiming to tap this rich source of buyers will need a special kind of property. Investors demand high-quality homes, preferably on the river or docks. "There can be a 20 per cent drop in value once away from the water," says Mr Folkes.That is twice the gulf between types of property seen two or three years ago."

The restrictions could continue to lock in hundreds of owners burdened with negative equity. Repossessions have fallen away since the 1992 peak - another reason why prices have stabilised - but debt remains a major problem in Docklands because so many people bought in the boom.

This produces a strange paradox: queues of buyers but stagnant prices. People may be keen to move in but will buy only at prices sellers cannot accept.

Values are likely to drift up as buying pressure increases, however. Some hot spots like Wapping and Shad Thames have already seen an uplift of 5 per cent in the last year for particular property. Prices in Surrey Quays, where demand concentrates mainly on family homes in the £75,000 to £110,000 range, rose around 7.5 per cent last year and will repeat this in 1995, says Mr Farrelly.

Anticipation of improved access via the Jubilee Line will stimulate a 20 per cent overall rise by the time it opens in 1998, he claims. Across the water in the Isle of Dogs the gradual filling of Canary Wharf will also provide an upward pressure on prices as more potential buyers come in. But it will be a long road for those who bought at the peak of the boom.