Developer faces loss of up to £1m as town houses go on sale

The properties, which are in Inverleith Terrace next to the Botanic Gardens, had been used as a care home until they were bought by development firm Heritor's in January in a joint venture with HBoS.

The developer had successfully applied for planning permission as recently as July to convert the properties back into three separate luxury homes.

But the work was never carried out and the properties are now back on the market for a combined price of offers over 1.2m – more than 1m less than they were bought for just nine months ago.

The move is the latest indication that the economic slowdown could now be affecting the top end of the city's property market, which had previously escaped the worst of the downturn.

Chris Buchan, the former Hong Kong lawyer who returned to the Capital four years ago to set up Heritor's, said market conditions had forced the firm to reconsider some of its developments. "Probably every developer in Scotland is going through a review of their strategy," he said. "We are in difficult and unprecedented times. Until the market reverts to normal conditions, there's little point putting good property on the market if it's not going to sell at the right price."

The Inverleith town houses are among the properties in a 150m fund that Heritor's holds with HBoS.

Mr Buchan said decisions were currently being made on "less than ten per cent" of the properties in the fund as to whether they could be sold off, but he denied the move was linked to the current difficulties in the banking sector.

He said: "It's nothing to do with the bank, it's to do with the market outlook. We anticipate a fairly competitive market for Inverleith Terrace, we've had notes of interest in the double digits and two offers which have been rejected.

"Being realistic, in these conditions if we were to achieve the same price that we paid for it that would be a very good result."

The sale comes after Heritor's, which states it has a worldwide property portfolio worth 250m, last month released images of its plans for 5 Greenhill Gardens in Bruntsfield. The two apartments, which are to be transformed into a luxury ultra-modern five-bedroom family home, were bought for 1.72m last year, but the remodelled property was advertised at offers over 1.6m.

Neil Harrison, of the Edinburgh Solicitors' Property Centre, said there were indications that developers were beginning to "change their priorities", but added: s

"We're still seeing the prices for larger properties holding up. We're certainly not seeing the same falls as elsewhere in the market."