Property prices could fall dramatically - by as much as 20 per cent within the next two to three years, an economist forecast yesterday. The trigger for the decline could be the departure of major multinationals.

The forecast was made by Hibernian Asset Managers economist Ms Fiona Adkins when presenting her company's investment outlook for this year. She said that the Republic would be "unique" if the last five years' housing boom did not lead to a sharp correction. A separate economic forecast by Friends First yesterday advised investors to reduce their exposure to property and invest in US technology stocks.

Before the boom ends, house prices will rise by around 10 per cent this year, according to Hibernian, but the potential for gains of up to 20 per cent or more, as happened last year, are very limited.

ESRI economist Mr David Duffy said he expected a slowdown in house price growth, but not a sharp correction. He agreed that there was anecdotal evidence of some slowdown in the housing market but he said this may be because sellers are seeking unrealistic prices.

Ms Adkins said there were already signs of pockets of stagnation and that if the market was going to turn, it would happen very quickly. She identified the departure of multinationals as the most likely precursor of a fall in house prices. Hibernian said house prices could rise by 10 per cent this year as demographic and economic fundamentals remain generally supportive. Ms Adkins said many more people were exposed to mortgage debt than the average figures show. "Many younger borrowers have repayments well above the average and are extremely vulnerable to the threat of a credit crunch or economic downturn."

The best affordability ratio to take into account, she said, was the fact that the average house now cost around seven times the average industrial wage.

The economy was also very vulnerable to an outside shock. "The speed at which some multinational companies have shed workers in recent months reminds us that the Irish economy is very vulnerable to global restructuring," she said. On the threat of US companies pulling out of the Republic, Mr Duffy said that most of these companies had moved here to serve the EU market.

"As long as the EU economy continues to grow, that will cushion us from the effects of a slowdown in the US," he said. But the Republic is doubly vulnerable, according to Ms Adkins, as our labour costs are being pushed higher by accelerating wage inflation and a rising euro.

Meanwhile, presenting its investment outlook yesterday, Friends First said it would be reducing its property investments.

It said growth in this area would slow down in the next five years to sustainable rates of around 4 per cent. However, it is optimistic on property prospects for this year, especially for city-centre offices. Friends First's head of equities, Ms Grainne Alexander, said growth stocks would become popular again. Therefore it is again focusing on technology stocks. Friends First has estimated that both the Irish market and the Nasdaq will rise by some 15 per cent this year.

Its director of investment strategy, Mr Jim Power, said there was still a 20 per cent chance that the US economy would not recover but would experience a "hard landing". If that happened it would set back growth globally and Irish jobs could also suffer, he warned.