Savills, the property consultancy and estate agency business, waded into the non-doms debate saying that how hard the tax is levied could be critical to the performance of the housing market in 2008.

The Mayfair-based firm said that "reassurance that the taxation of non-domiciled residents is not going to be too onerous" would be one factor that would be critical to the sector in 2008.

Further interest rates and how quickly capital markets return to liquidity, will also be key factors behind a return to house price growth.

Savills has given warning that prospects in both the residential and the commercial property markets will hinge on how quickly confidence returns to the financial markets.

However, Aubrey Adams, group chief executive of the group who has more than three decades of experience in the property industry told Times Online that the current problems in the market were "nothing like the early 1990s" recession. "It's absolutely nothing like that. In the underlying market there is still some very good news. There's a good letting market and signs of tenants taking up space, " Mr Adams said.

Savills' caution for the current year is coming off the back of a bumper 2007, which will see Savills 5,000 staff share a bonus pool of £152 million, 20 per cent higher than last year.

The bonus payout will see employees paid an average of £30,400 in a mixture of cash and shares, after underlying pre-tax profits at the group increased by 14 per cent to £85.5 million.

Savills said it had benefited from a broader international presence which followed its acquisition of New York-based brokerage Granite Partners in August.

The company achieved strong results despite the credit crunch beginning to take its toll on commercial property investment sales and, in the second half of the year, on residential property transactions.

House prices at the very top end of the central London market saw growth of 29 per cent in June 2007, fuelled by record City bonuses. However house prices fell by 2 per cent during the last quarter of the year.

Turnover in the new homes market was also “noticeably down” in the last quarter of 2007 as demand from buy-to-let landlords and other investors tailed off.

Mr Adams said that the housing market cooling was taking longer than expected and that instead of seeing a return to house price growth in 2008, Savills was now predicting a static market or even a small fall in house prices in the current year exacerbated by the reluctance of homeowners to put their properties on the market.

Despite Savills high profile in the UK residential market, commercial transactions make up 80 per cent of the group's profits. In the UK, commercial investment transactions slowed in the second half, hit by the global credit squeeze, but Jeremy Helsby, group chief executive designate, believes the commercial property investment market, in London, is at or near the bottom of the cycle, with yields having now adjusted.

"The issue now is a mexican stand-off between buyers with cash and the investment funds who were set to be forced sellers but have now decided not to sell," Mr Helsby said.

The nature of buyers in the investment market has also changed in the first quarter, with cash buyer-German funds now chasing the few investment deals available. For the last few years, most property investment transactions have been debt-financed.

Savills added that office demand in central London will remain subdued until the credit squeeze has eased, although it sees no sharp downturn, given the current low levels of vacancy.

Peter Smith, chairman of Savills, said: "2008 will be a challenging year for the property industry worldwide. However not all segments and geographies will be affected equally."

Mr Helsby, who takes over at the helm of the business in May, said that Savills was "well placed to take advantage of the opportunities that might arise in the months ahead as a result of the volatile financial markets".

Mr Adams, who has been group chief executive of Savills for the last 18 years, said that it was absolutely the right time for him to retire but added that that had nothing to do with the state of the market.

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