Prime property in Edinburgh and Glasgow has declined in value by between 15-20% since autumn 2007, the first time price falls on that scale have been experienced in Scotland.
The first quarterly Property Update from letting and estate agent, D J Alexander, reveals that while the upper end of the market was relatively resilient for much of 2008, the final three months showed a sharp decline. During that time potential buyers struggled to obtain mortgages and consumer confidence was badly dented.
A three-bedroom flat in Edinburgh's New Town would have sold for £700,000 at its peak, but would now fetch £600,000, if it managed to sell, according to DJ Alexander. In Park Circus in Glasgow the value of an equivalent property will have dropped from £400,000 to £300,000.
DJ Alexander is basing its outlook on a continued lack of liquidity in the market creating a "mortgage famine" and a lack of confidence.
David Alexander, owner of DJ Alexander, said: "The 'uber-prime' market in Glasgow in Edinburgh is usually rock solid. But in the conditions we have this year, there's no chance the market will do anything but fall. It is not being over-pessimistic to predict an overall decline of around 25-30% for the 24 months between January 1, 2008 and December 31, 2009."
But he warns that when the price of a house falls by 50%, it then has to increase by 100% before returning to the value that existed before the decline set in. Therefore it may be 2013 before residential property starts to show a net increase in equity.
He fears mortgage lending will not resume to a level which will stimulate the market until a bank is fully nationalised and given the role of providing affordable finance. Royal Bank of Scotland, which is already 58% state-owned, could fill that role, according to Alexander.
Northern Rock does not fall into this category as the government has put limits on how much it can take in deposits and how competitive its mortgage deals can be.
After a lengthy bottoming out in the market, Alexander predicts a "hockey stick" shaped recovery. This means values will increase at a faster and sharper rate than the earlier decline. He puts this down to pent-up demand from potential buyers.
He said: "Literally millions of people will have undergone regime changes to their personal and professional lives that require them to move house – marriage, divorce, a first child, new employment or retirement."
However, he added that Scotland, and Edinburgh in particular, will experience the devastating impact of job losses in the financial services sector for years to come.
A house price poll by Reuters has predicted that UK house prices will fall by about 11% over the next 12 months, and the market will take up to two years to stabilise.
SCOTLAND ON SUNDAY, 18 January 2009