Edinburgh flat falls by more than £600,000 in less than two years

The slump in property prices may have reached its lowest depths in an Edinburgh suburb, a city almost as notorious as London for its overheated housing market.

The slump in property prices may have reached its lowest depths in an Edinburgh suburb, a city almost as notorious as London for its overheated housing market.

A modest two-bedroomed former council flat bought for £660,000 is now on sale for less than a tenth of its purchase cost, simply because the superstore chain Tesco desperately needed a small chunk of its back garden six metres square.

The lawn behind 16 Colinton Mains Drive in Oxgangs lay in the way of the proposed entrance to a new store. So, in October 1998, Tesco snapped up the property but in the process, inadvertently made its garden one of the most expensive pieces of real estate in Britain.

Tesco has put the flat on the market for offers over £39,950, leaving it paying roughly £103,000 a square metre for a tiny patch of garden - a price that outstrips the average price of land in central Hong Kong, the Square Mile in London and Manhattan.

According to FPD Savills, a property firm that specialises in luxury homes, such a sum could have bought a fourbedroom villa and two cottages sitting in 50 acres overlooking Loch Ness or a 10-bedroom hotel in central Edinburgh.

The saga of Number 16 began when the property firm Revival Land paid a remarkably generous £130,000 for the small flat then owned by Elizabeth McIntosh, who had originally bought it from City of Edinburgh Council for £27,000.

The garden was part of a larger land acquisition by Revival for the new Tesco store. Tesco then paid Revival £660,000 for the entire property. Now, after slicing off that 6-metre patch at the back, Tesco is unlikely to recoup more than £45,000 for the flat.

Tesco appeared to be very defensive about the deal yesterday. A spokesman for the chain insisted the price it paid was justified by the size and value of the overall deal. "The six metres square area of land was a small but important part. Therefore to look at that as a single item is a little bit misleading," he said.

The closing date for the sale is tomorrow, and the agent, Your Move, has so far received two firm bids and two further expressions of interest.

According to a spokeswoman for Your Move, although the house needs renovation, "it still has a reasonable little square of garden".