THERE is good news and bad news for those who have always dreamt of that prized address in London.

The bad is that prices are expected to grow at a much slower rate next year so investors cannot expect a quick buck.

The good: London still remains the best property investment market among the top European cities.

So if you were eyeing an investment in London, moderate price growth could well keep some homes within your reach.

A recent report by property consultancy Knight Frank showed that luxury home prices in the city rose last month at the slowest pace since July 2005.

This is mainly due to the US sub-prime crisis, which caused banks to write down multi-billion dollar debt instruments, and has deterred buyers from the financial services sector who are facing job cuts and smaller bonuses.

The average price of homes which cost at least £2.5 million (S$7.5 million) increased 0.3 per cent in October from the previous month, according to Knight Frank. This pales in comparison to prices surging some 34 per cent for the year ended October 2007.

London has seen a rapid turnaround in market sentiment, said Knight Frank's report.

"In early summer, we were still in the midst of the strongest market for 20 years. Now we are seeing growth fall back rapidly as the market cools. We have seen a seller's market replaced very quickly by a buyer's market."

This, coupled with a recent survey by La-Salle Investment Management - which placed London as the most attractive property investment market in Europe - ensures that investor interest is still high.

The turnaround in market sentiment means ambitious pricing has effectively ended  across the prime and mainstream markets, making London homes comparatively affordable.

According to property consultancy CBRE, prices of London homes now range from £700 per square foot (psf) for a new build property, to £1,750 psf for prime residential properties.

At Hyde Park, one of the city's most sought-after addresses, homes are selling "well beyond" £4,000 psf - which is the average price for most high-end homes.

Areas like Knightsbridge, Mayfair and Regent's Park have achieved prices in excess of £3,000 psf. Luxury homes in these areas, mainly low-rise, have transacted at an average £2,000 psf.

Some other better performers are the City and central Docklands area, which have seen strong interest from investors flocking to London from the US financial institutions.

Property agency Hurford Salvi Carr reports sale prices rising in the past six months by 12 per cent in Docklands and 10 per cent in the City as American banks, hedge funds and accountancy firms leverage on London's status as a financial hub.

Strong investment transaction volume has been reported, although rental yields are expected to soften due to the difficult credit environment.

Other areas worth looking at are north London districts Islington and Hampstead, which have seen urban renewal and regeneration programmes.

Beaufort Park at Hampstead Heath, for example, offers studios as well as larger apartments, at a more affordable £400 psf on average.

Prices also drop significantly as you move further north towards Bow and Bethnal Green, with homes at an average of £400 psf.

Another obvious location for investors is Stratford and Thames Gateway, where prices are almost guaranteed to appreciate in the lead up to the 2012 Olympics, which will see the area undergo extensive infrastructure development.

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