Developers gamble on city's market being safe as houses

While some developers have been scaling back the number of projects they take on, others are looking to gamble on the economic situation improving.

Among them is Cala Finance, the funding arm of Cala Group, which today insisted it was still confident about investing in Edinburgh as it unveiled plans for a new development.

The company has linked up with Lothians developer Change Homes to create a mix of family townhouses and flats in Colinton.

Cala said that now was the time to develop so that projects will come on to the market as lenders ease the strict criteria for approving mortgages.

Jim Ross, managing director of Cala Finance, said that there will be high levels of "pent up" demand as many buyers will currently be choosing not to move or opting to rent rather than buy.

But he expects that when conditions improve, there will be a glut of fresh buyers coming on to the market.

"In periods of uncertainty we believe people stay out of the market and that creates future demand," said Mr Ross.

"Markets are definitely cyclical. We just don't know at this stage how long the cycle will last. There is a lot of unmet demand at the moment, but in due course these people will come back.

"They might rent for a few months or wait and see what happens in the market but they want to buy and they will buy when the market is right."

Cala Finance's link-up with Change Homes will see seven one, two and three-bed apartments with a market value of between 185,000 and 300,000 being built, as well as three family townhouses at around 445,000.

The development, at West Mill Road, represents a 3.4 million investment for the companies, with the money being provided by Cala Finance by means of a loan.

Change Homes also allows buyers to adapt some of the interiors, fittings and colour schemes, which it said helps it attract custom. Cala Finance is looking for other similar opportunities.

Cala Finance has also recently funded a 7m development by Macfarlane Homes in Edgehead, Midlothian.

Scott Fairgrieve, chairman of Change Homes, said: "We have a shortage of houses in Edinburgh and the Lothians.

"This credit crunch is scaring people just now but we'll be starting on site this month, it will then take 14 months to build and we've set aside up to six months to sell, so we think in 18 or so months this whole credit crunch will be in the past."

But Faisal Choudhry, a researcher for estate agent Savills, sounded a note of warning. "New build has been slow for the last four or five years," he said.

"Even before the credit squeeze we talked about the difficulties of getting the mix right."