A pre-fabricated bungalow that has been out of use for more than ten years has been sold for £920,000 at auction. The derelict three bedroom property in increasingly trendy Peckham was sold by the local council on Monday.

Tenants last occupied the 0.06 acre corner plot in 2002, while the bathroom was described on the sales particulars as “not fitted”.

The south-east London bungalow, which will require significant refurbishment and modernising, began with a guide price of £590,000, but bidding started at £600,000 and rapidly rose, eventually finishing at £920,000.

While there is no planning permission on the site, it is thought that the buyer will attempt to get permission to build new homes nearby. Peckham has become very popular with young professionals priced out of Clapham and Brixton, with a modern two-bedroom flat nearby to the bungalow currently on the market for £449,950.

“The bungalow on Costa Street provided bidders with an opportunity to acquire a site with great residential development potential, situated close to the popular Bellenden Road,” Chris Coleman-Smith, head of Savills Auctions, which sold the property, said. He added that Peckham has become an increasingly sought-after neighbourhood in the last decade. The area was once best known for Only Fools and Horses and social deprivation, now it is witnessing the benefits of years of regeneration and gentrification.

“There was quite a lot of interest in it and bidding started at £600,000, so people weren’t messing around,” Coleman-Smith added. “Average prices in Peckham Rye now exceed £550,000, so there is certainly scope for the buyer to achieve a good return.”

Southwark council, which sold the bungalow, insisted the money raised would go towards improving its current housing stock as well as being invested into new properties.

“Although selling council homes is not something we would normally want to do, sometimes the costs for repairs and refurbishment to bring our older properties to a decent standard are simply too high,” Councillor Richard Livingstone, Southwark council’s cabinet member for housing, said. “In these cases, we have the option to sell them when they become vacant and use the money to fund this housing investment programme.”

He added: “We are extremely pleased that once again we have managed to raise a significant amount of money from the sale of a property that was far past its expected lifespan, to put back into creating better homes for our residents.”

In 2013 Southwark council raised nearly £3m from the sale of two large houses in another part of the borough, money that was reserved for the building of 20 new homes. But they have faced criticism from activists who say too much council-owned stock is being sold off to the highest-bidder.