The Scottish housing market outperformed all other UK regions last year recording a capital growth rate of 13%, says a new study.

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New homes built in Scotland experienced a growth rate of 19.9% in 2007, points out top-end agent Knight Frank in its latest Scottish report.

However, sales did fall by 16% in 2007 and further reductions are expected in 2008 in response to the global credit crisis.

The good news is Knight Frank forecasts Scotland will see house prices grow by 1% in 2008 against an average fall of -3% across the rest of the UK.

Knight Frank’s head of research Liam Bailey comments: ‘Analysis published in our latest research on the state of the Scottish development market shows 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%.’

The figures reveal house prices in Edinburgh and Glasgow rose by 12.9% and 15.5% respectively, while peripheral towns and suburbs recorded growth of up to 19%. The new build sector exceeded this level at a growth rate of nearly 20% over the year.

While values have increased, in response to a lack of supply and rising wealth creation, sales volumes did not due to weaker market conditions in the final quarter of the year and constrained supply in the new build sector. Only 46% of all major planning applications were processed in the last financial year (compared to 51% in 2004/2005), costing the Scottish economy £600 million.

Mr Bailey notes that it is clear rising prices for city centre property are affecting demand for housing in more peripheral locations and on commuting patterns.

‘With the average house price in Edinburgh exceeding the Scottish national average by 58% and the affordability ratio (house price to earnings) in Glasgow approaching five to one, purchasers are having to consider more distant locations,’ he says.

The area that should see the biggest growth is that lying equidistant between Edinburgh and Glasgow in towns like Stirling, Dunblane and Falkirk.

‘However, we also expect areas closer to Glasgow such as East Kilbride, Hamilton, Paisley and Renfrewshire to benefit from regeneration investment,’ concludes Mr Bailey.

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