According to Knight Frank, the Scottish housing market outperformed all other UK regions in 2007, recording a capital growth rate of 13%.

New homes built in Scotland experienced a growth rate of 19.9% over the course of last year. Sales volumes fell by 16% in 2007 and further reductions are expected in 2008 in response to the global credit crisis.

Knight Frank forecasts that Scotland will see house prices grow in value by 1% in 2008 against an average fall of 3% across the rest of the UK.

Liam Bailey, head of residential research at Knight Frank, said: “ Scotland’s housing market is proving remarkably robust in the face of the turbulent market conditions affecting the wider UK market. Analysis published in our latest research on the state of the Scottish residential development market (Steadfast Scotland) showed that house prices across the country grew by 13% in 2007, a rate well in excess of the UK average of a little over 5%.

“Our research showed that these figures disguise varied local market performance. The first is that while house prices in Edinburgh and Glasgow ended 2007 12.9% and 15.5% higher respectively, peripheral towns and suburbs recorded growth of up to 19%. Indeed the new build sector even exceeded this level, returning a growth rate of just under 20% over the year.

“However, while values have increased, partly in response to a lack of supply and rising wealth creation, sales volumes did not. Over the course of 2007 sales volumes fell by 16%, partly as a result of weaker market conditions in the final quarter of the year, but also due to constrained supply in the new build sector, for example only 46% of all major planning applications were processed in the last financial year (51% in 2004-05). This delay cost the Scottish economy £600m through a combination of deferred benefits of infrastructure investment and lost turnover from delays in commercial investment.

“Future housing supply is inevitably set to play a central role in the new government’s domestic policy agenda. However, with the need to invest in areas requiring large scale regeneration (e.g. Glasgow central belt) while simultaneously tackling inflationary pressures in markets needing affordable housing provision and greater supply levels (e.g. Edinburgh) it remains to be seen whether both issues can be achieved simultaneously. In both cities however, the future health of the market is increasingly reliant upon product mix, type and quality and not simply volume.”