Sonia Purnell/telegraph.co.uk

Romantic buildings and buzzing streetlife are attracting buyers to southern Spanish cities. Sonia Purnell reports on the Andalusian boom

It may still be a mud-splattered building site, but an 18th-century palace a stone's throw from Seville's celebrated Gothic cathedral is already causing uproar. Prices for the apartments being built there have been denounced in local papers as "extortionate" and "obscene".

Why the kerfuffle? The palace, with its elaborate stucco and ancient pillars from the nearby Roman settlement of Italica, is stunning. But the prices of the 18 properties, which range from €318,000 (£217,000) for the large first-floor studio at Casas Catedral (00 34 954 214 526) to €1·5 million (£1·02 million) for the three-storey penthouse with private pool, have broken the city's records. Yet despite the hefty price tags - seen previously in Spain only in the smartest addresses in Madrid or Barcelona - half have already been snapped up off-plan.

Such extravagance is the new face of Andalusian city life. Just 15 years ago, an entire palace could have been picked up for £50,000 and the home town of Carmen was better known for its red-light district than cosmopolitan living. Now Seville is attracting outside buyers prepared to pay the new prices.

Their investments may yet prove wise. Not only does Seville have the feeling of a boom town, but its appeal as a tourist destination is also soaring. The Casas Catedral flats, which also have a third-floor communal pool, overlook the route of the Semana Santa (Holy Week/ Easter) procession, which draws huge crowds from all over the world.

Owners will therefore, according to Domingo Cardenas, a local architect and property expert for many British buyers in Seville (00 34 955 662 708), be able "to charge any rent they like during the festivities". The rest of the year, they might expect as much as €1,000 (£681) per week for a three-bedroom flat.

The influx of well-heeled buyers from elsewhere in Spain, as well as an increasing number of foreigners - notably Americans, French people and growing numbers of Britons - reflects Seville's new status as hip city for holiday homes. As people tire of the bland and brutal sprawl of Spain's southern costas, they are increasingly turning to inland cities, such as Seville and its Andalusian cousin, Granada, for their culture, architecture and buzzy streetlife.

Ryanair provides cheap scheduled services to airports less than half an hour out of the towns, and both have a large stock of old buildings - palaces or grand old casas señoriales, (gentlemen's houses) - suitable for conversion.

Seville remains the flashier, and more expensive, of the two. In some barrios, such as the now touristy Santa Cruz, there are few undeveloped buildings, and buyers will need at least €200,000 (£136,000) for a renovated two-bedroom flat. For something more special, a newly renovated, two-bedroom, first-floor apartment in Corral del Rey with romantic balcony surrounded by fabulous stucco mouldings is for sale at €378,000 (£257,000), through Consproy (00 34 955 045 178; e-mail: terbio@supercable.es). An apartment in Calle Abades, with Moorish balconies, air-conditioning and a rare, large terrace is being sold for €480,000 (£342,000), through Property Finders.

Local agents do not speak English and international agents have been slow to move in. Most foreigners buy through sourcing agents, such as Barbara Wood, of Property Finders (01908 218753; www.thepropertyfinders.com), who works closely with the locals in both cities to find properties through word of mouth. This is a popular method in southern Spain, as many agents charge commission of up to 10 per cent.

Wood advises buyers thwarted by the high prices in Santa Cruz to explore nearby La Macarena, a slightly shabbier barrio where good two-bedroom apartments cost about €200,000 (£136,000). Most of the new conversions are sympathetic to the Moorish style of glazed balconies, beamed ceilings, tiled floors and courtyards - or "patios", as they call them here.

Three hours down the motorway is Granada, where reconstruction work has taken off in the past few years. Few Britons have bought here, although the city has a lot to offer in terms of culture - the Alhambra is the most visited site in Spain - as well as for the skier. At 2,200 feet above sea-level, it routinely endures a real winter - unlike the low-lying Seville - and is half an hour from Solynieve, Europe's southernmost ski resort. Skiers or snowboarders can be on the slopes by day and then dine out in style in Granada's tapas bars and restaurants.

"Granada is unique. I don't know of any other ski resort so close to a historic city," says Barbara Wood. "In the spring, you can also be skiing in the morning and sunbathing on the beach in the afternoon." Granada is just 45 minutes from a quiet stretch of coast with a series of wooded coves and uncrowded beaches around Almuñécar and Salobreña.

Despite its many assets, prices in Granada are roughly 25 per cent lower than in Seville, and have risen by about 15 per cent in two years. "No one is talking about boom conditions here, but the feeling is that it is still to come and that regeneration is only just under way," says Wood.

Generous government grants of up to 40 per cent of the cost of renovation works are available, and one area particularly popular for this is Albaicín, a fashionable maze of narrow streets climbing the hill opposite the Alhambra. An unrenovated flat in Calle Espino, which would make a good two-bedroom, two-bathroom apartment, is on the market for €162,000 (£110,000) through Wood. Although tatty, it is structurally sound and commands a stunning view of the Alhambra from the sitting-room balcony. Also in this area are dozens of run-down carmenes, low white-washed houses, often with enclosed gardens with fountains and balconies looking up at the Alhambra.

To the north-east is the other up-and-coming area, Sacromonte, once the heart of the gypsy quarter but now packed with bustling bars and restaurants, some of which are housed in converted caves. The council is encouraging owners of run-down carmenes and other historic houses that they cannot, or will not, refurbish to sell them, often at relatively low prices, to help with upgrading the area. A list of such buildings is available at the town hall, but buyers will need to be fluent Spanish-speakers or to employ someone to carry out the negotiations. Local builders estimate that such renovation jobs typically cost between €80,000 (£54,000) and €100,000 (£68,000).

With tourists waiting up to two years to book a tour of the Alhambra, the short-term rental market is brisk. Even a modest but central two-bedroom property could command €100 (£68) a night. In a more central area, on Calle Doctor Oloriz, developers are refurbishing a grand building with stone balconies overlooking the street, where large apartments with four bedrooms, two bathrooms and a porter will cost about €377,000 (£256,000). Who knows, in five years' time that might seem absurdly cheap.