But those gains could soon come under pressure, warn brokers, as the impact of part of those government reforms -- such as an increase in taxes on high-end properties -- sinks in.

British finance minister George Osborne said this month he would introduce sweeping cuts to taxes on nearly all property purchases, addressing a long-standing grievance of home buyers five months before an election.

Under the scheme, only buyers of houses worth more than 937,000 pounds will pay more.

That could hinder sales of the most expensive new developments, focussed in the capital, long a growth engine in the property sector.

House builders' shares initially rallied, extending strong gains so far this year. Barratt Developments and Taylor Wimpey are up between 20 and 30 percent this year, and both will join the blue-chip FTSE 100 index later this month.

Both companies also delivered strong updates last month, reassuring investors that they should be able to withstand a cooling in prices.

But investors and analysts are turning more cautious on a sector that has been supported by wealthy foreign buyers in London.

"Given the move by Mr Osborne, surely that's going to offer another brake on the excessive speculation and excessive foreign investment that has gone into UK property," said Sandra Crowl, a member of the investment committee at Paris-based Carmignac Gestion, which runs 50 billion euros ($61.55 billion) in assets under management.

The rally in the sector has so far been spurred by investors looking for a return given low yields in bonds.

Taylor Wimpey is forecast to have a dividend yield of 6.3 percent over the next 12 months, with Barratt Developments forecast to have a yield of 5.6 percent, Thomson Reuters Starmine data shows. The FTSE 100 average is 3.9 percent.

But that could all change if property cools and yields elsewhere improve once the Bank of England raises interest rates.

"The property sector has largely benefited from this search for yield," Emmanuel Cau, European equity strategist at JP Morgan, said.

"If we see a turn in the bond market and yields start to go up, this should be a candidate for profit taking."

While few are expecting a dramatic house price slump, the sector could miss out on a boost at the margin where developers have focussed much of their efforts.

Updates from Taylor Wimpey and Barratt Developments this year have cited the strength of the London market as an increasingly important element of their business.

Barratt derives 18 percent of its sales from London, while Taylor Wimpey makes 13 percent of sales there, according to UBS. Mid cap Berkeley makes 80 percent of its sales in the capital.

Alastair Stewart, analyst at Westhouse Securities, said that the higher prices would hit London more and potentially lower prices, amid signs that the capital is weakening already.

He added that changes to the tax system would make purchases of existing houses easier, which could hit demand for new developments.

"(The reforms) will probably initially be seen as positive for the house builders, but we believe it is net-net slightly negative," he said.

(Reporting by Alistair Smout; Editing by Andrew Heavens)

By Alistair Smout