The Department of Finance review of property based tax incentives has sent a shiver through the thousands of investors who have bought up holiday homes and apartments to rent out over recent years.

Consultants have been invited to tender for reviews of area-based renewal schemes (such as the urban and rural renewal schemes) and property-based schemes (such as the hotel, hospital, and multi-storey car-park schemes). Some of the property-based schemes are due to come to an end on July 31st, 2006, but the applications for tenders do not exclude the consultants from coming to a view that particular schemes should be extended or renewed.

At the same time, 10 years on from their original launch many of the original seaside schemes are coming to the end of their tax incentivised life. As a result hundreds of the apartments and homes are likely to start coming on the market this summer and some fear that prices could come under pressure.

Since the schemes were first launched on a pilot basis in July 1995, the tax relief for resort areas has proved popular with investors, so much so that demand has often exceeded supply. Tens of thousands of investors have poured cash into holiday homes from Achill to Courtown. as well as inner city renewal areas which were introduced earlier. The incentives worked in different ways but essentially investors have been able to utilise substantial capital allowances for set-off against either income arising from the letting of the holiday cottage or profits from the trade for which the holiday cottage is used.

Section 25 of the 2004 Finance Act provided for an extension of the transitional arrangements for the scheme of capital allowances for hotels, holiday camps and holiday cottages from 31 December 2004 to 31 July 2006, provided a full and valid planning application is received by a planning authority on or before 31 December 2004.

The exact numbers of second homes are not known, although the Department of Finance is commissioning a report into the matter. However, what seems likely is that the properties will be coming onto the market in increasing numbers over the next few years as investors realise the substantial capital gains they have made over the period.

Experts say it is important to differentiate the two types of investment and that there is little reason to be concerned about residential investment in well-located areas. Davy Stockbrokers and DKM Economic Consultants, who were probably among the most bearish commentators on the likely value of property investments, have changed their tune. Their former gloomy analysis was based on far less positive migration patterns than now look likely to be the case.

The Central Statistics Office is now predicting that almost 30,000 people a year are likely to be coming to Ireland over the next few years. "That will certainly hold up demand for buy to let in cities and the outlook is far more positive than we thought," says DKM's housing economist Annette Hughes.

And as Bank of Ireland chief economist Dr Dan McLaughlin points out the market is already reacting with the number of planning permission for new apartments schemes already static. "The market is self correcting and the number of new homes and apartments being built will fall over the coming years."

But many investors are still concerned that there could be a glut of these investments on the market in 10 to 15 years as those who bought them approach retirement and consider cashing in. However, again the statistics do not back up this fear.

Assuming of course that the economy continues to do well there should not be a problem says Hughes. In 2001 for example there were 796,000 people in the key 35-49-age bracket. However, by 2016 when many of these may be looking to sell up, there will be some 1.1 million in the same age group.

"That means there will be more people in the target market who today's investors will be looking to sell to. Assuming the economy is doing well and people's incomes are going up that should mean that there will be no problem." But she warns that the story may be different for holiday homes.

The holiday homes market was given a boost from the special tax incentives available since late 1995. So much so that according to DKM estimates almost one third of all homes built in the past few years have been bought as holiday homes.

But Dr McLaughlin argues the tax incentives have distorted the marketplace. "The supply of holiday homes is not in line with the underlying demand," he says. "Looking forward they are likely to be even more out of kilter as more properties come onto the market."

Ken MacDonald of estate agency Hooke & McDonald dismisses this. "People predicted the same of the first section 23 properties which ran out in 1991 but prices did not come down. Irish people tend to hold onto their property if they possibly can and many people will not sell up even if the tax advantage is gone."

And other experts point out that well located homes with sea views are always going to have a huge cache and appeal to young families. It is the future of some of the bigger estates of tax incentive property which are more open to questions, said one agent.

According to McLaughlin the massive surge in the popularity of holidays abroad will also undermine demand. In 2004 Irish people took some 5.4 million trips abroad that is up some 42 per cent from the 3.8 million holidays taken in 2000. In contrast the numbers of visitors coming to Ireland has only increased by just under 5 per cent in the same period from 6.3 million in 2000 to 6.6 million in 2004.

"The Irish are the new Germans of Europe buying up homes all over the Continent and holidaying abroad in increasing numbers. The idea of a holiday home in Ireland is likely to become far less attractive as cheap flights encourage families to holiday abroad."

The bottom line he says is that if you are buying holiday home now you should be doing it because of the intrinsic value of owning a home here and not because you expect much appreciation.