Daring scheme that paid off : PROPERTY

A BBC television crew was filming a party at Observatory Gardens in Kensington last week as part of a series of programmes about the Eighties. The party probably represented their only chance in these sober days to get a shot of property people ce lebrating over a glass of champagne.

Ironically, Observatory Gardens is very much a scheme of the Nineties. The huge development occupies an entire block just north of Kensington High Street, once home to Sir James South, founder of the Royal Astronomical Society. By the time it was bought by the development company Northacre in March 1992 it had deteriorated into a boarded-up red brick terrace.

In the Eighties the old buildings would almost certainly have been demolished and rebuilt as a series of "luxury apartments" - offering as little luxury and as many apartments as possible. What Northacre has done is to preserve and clean up the facade, while building a row of serviced apartments behind.

Work began in 1992, the year the property market hit rock bottom. At the time it seemed an unbelievably daring venture. Three years on, Northacre finds itself the proud owner of exactly the kind of product rich people in central London want: homes with parking, closed circuit security systems, finished with traditional materials, and in a prime location.

Prices have rocketed. The first three blocks to be released sold for between £2.6m and £5.2m to foreign investors. Now the last block of 12 apartments is up for sale, priced at £375,000 for a two-bedroom, two-bathroom flat, to £725,000 for a large three-bedroom flat.

When Northacre bought the Observatory Gardens site for around £6m there was little competition. No bank was interested in funding housing developments in London when property had fallen 30 per cent in value in three years. Now, with the central London market underpinned by foreign buyers, demand for good sites has become intense.

One of the best to come up for sale recently is the north block of the Royal Brompton Hospital on the Fulham Road. Eight hundred developers expressed an interest in the 21/2 acre site. Last week the site was sold to a consortium led by John Laing for around £20m.

The main hospital building is listed Grade II, which means any conversion will be under the watchful eye of bodies like English Heritage. It will have to be sensitive and therefore expensive. In paying such a huge price the consortium presumably believesproperty prices in central London are going to continue going up.

Repossessions may be set to rise, but the auction rooms they once dominated are seeing an increasing number of unforced sales. Barnard Marcus has one of the cheapest flats likely to come up in the prime area of Notting Hill, west London. The studio flat in Cornwall Crescent with an open plan kitchen and bathroom has a guide price of £40,000 on a 60-year lease.

The same auction includes a five-bedroom terrace in Herne Hill, south London, with a guide price of £80,000, and a tiny whitewashed cottage in southern Spain, offered for £25,000. The auction takes place on Wednesday and Thursday at the Waldorf Hotel in London. (Barnard Marcus 081-741 9990).