The rock-bottom rates for flats in the German capital might reflect the sluggishness of the Federal Republic's economy and the role Berlin plays in draining its resources.

But for a group of fearless Irish investors, the reunited city, arguably one of the most exciting metropolis in the world, represents not only a challenge but a long-term investment opportunity.

In the 1970s and '80s, the Irish flocked to what was then West Berlin to work in the decadent, avant-guard, free half of the city, usually its pubs and clubs.

A decade later they returned to rebuild divided Berlin, flooding onto its many construction sites. Now in the 21st century they, along with the Russians and Israelis, have come back to take it over.

The Irish property force has established its beach-head at the far western end of the Kurfurstendamm, Berlin's fashionable, well-heeled shopping district.

In the last eight months alone, a group of Co Mayo investors have bought more than 40m-worth of flats and apartments. At present, they are negotiating one deal alone that could buy a vast complex of apartments in the city estimated at 35m.

Spearheading the big Irish buy-up of Berlin is Mike Morris of Mayo-based Premier Estates Maloney.

"We started looking at Germany and in particular Berlin because it is a stable, conservative and trustworthy society. The company had thought about expanding our property portfolio into eastern Europe but those countries are potentially unstable, which Germany is not, " he says. The company currently owns three apartment blocks close to one of the main motorways looping around western Berlin.

"The 35m deal we are trying to secure now would land us with 900 apartments, 30% of which need renovation. What we are offering in all our properties is a net return per annum of 7% from rental incomes."

A brief stroll across the Kurfurstendamm with Morris into the affluent Halensee district reveals the depth of the Irish investment invasion in Berlin.

As he passes by a row of businesses below ornate 19th-century Wilhelmine apartments in Westfalische Strasse, with shops ranging from health food centres to lingerie stores, Morris points and says: "That's Irish-owned, that's Irish-owned and that's Irish-owned. In fact, most of the buildings on the left hand side of this street have Irish landlords."

Premier Estates Maloney and the other Irish property companies following in their wake have not kept their investments solely to western Berlin.

Their portfolio includes apartment blocks in the eastern and increasingly fashionable Prenzlauer Berg district.

These include six retail units and 15 offices with a McDonald's as the main tenant.

The expansion east of the Irish investor follows a trend across Europe, with entrepreneurs who made fortunes from the Celtic Tiger buying up airports and shopping malls in Britain;

thousands of apartments on the Spanish costas and Florida and hotels and ski chalets in the Balkans.

The Irish are estimated by economists to be in the top three foreign investor nations in Berlin. In an even more bittersweet twist of history, their main rivals in the market are Israelis and Russians. However in a city of 3.4 million where only half of its citizens are working, German observers of the Berlin property market are extremely cautious.

Ralf Schoenball, a property expert for the Berlin based daily Der Tagesspiegel, warns that Berlin may not be the best place for Irish investors to buy flats and apartments.

"Don't get me wrong. I have been here since 1983 and I love Berlin. But the economy of this city has shrunk every year since 1996 with one exception . . . 1% growth in 2000.

"Because of the shrinking economy, there are fewer Berliners working and the incomes of the households are decreasing if you take into account the cost of living. For the housing market this means that people have less money to pay rent. There are also 100,000 empty flats in Berlin so tenants can move around and find the cheapest places to rent."

Antonio Enkel is an estate agent based in Steglitz, southwest Berlin. Returning from Kreuzberg after showing a Russian couple around a loft they are considering buying, he warns that anyone buying an apartment for rental income should ensure there are already tenants for the property.

"We have lots of Irish clients along with Danish and Russians. But the majority come here to buy holiday flats as well for long-term investments.

"If you buy a flat without the guarantee of a tenant you might have to wait a very long time, maybe for years to make money on it. There are so many flats empty here."

None of this classic Germanic pessimism dents the confidence of Morris or his three fellow investors. "We are always extremely careful to check out which are the best areas to buy. We go through everything thoroughly before buying up or advising others to buy, " he says.

Schoenball suggests a better place to expand Irish property portfolios might be Dresden, which in recent years has attracted a large number of multinationals, including the computer chip firm AMD.

In response Morris says: "We still think the prospects for Berlin look good in the long run. Many of the Germans in business here are too conservative."

He brushes aside the cautious noises of German observers and says:

"We own two-bed apartments here just off the Kurfurstendamm that we are selling on the market for around 50,000. In an equivalent area of Dublin, like say Rathmines, a similar property would be worth 500,000. There are good deals to be had here in Berlin and the long-term returns will be worth it."

Then he pauses, taking on board the advice about expanding further east:

"Although maybe we might take a look at Dresden too."