Michael Blackley, The Scotsman

ALTHOUGH cheaper flights have opened up the holiday world for British tourists, Spain and France remain the most popular destinations - and still dominate the market for buying property abroad.

The latest figures show Britons own 69,284 properties in Spain, worth £7.6 billion. France is not far behind, with 51,322 properties worth £5.6 billion. Although other countries are slowly catching up, the next highest number can be found in Portugal, with just over 5,000 British-owned properties, then Italy with 2,566.

Peter Esden, a partner in John Howell & Co International Solicitors, who deal with properties in Spain, France, Italy and Portugal, says: "France and Spain are established markets for people from the UK to buy in, and that gives you confidence. Many of us have been on holiday in Spain or France and have some understanding of country and culture. They feel comfortable there.

"The system of buying is also a well-trodden path in both countries, as opposed to buying in the emerging markets, where you are more of a pioneer. Those looking to buy-to-let are also encouraged by knowing that there is a demand for rental of property from holidaymakers in both France and Spain."

Esden says France and Spain are very different markets, with re-sales more popular in France than new-build. But in both countries, growing popularity has helped fuel house prices.

According to the Spanish Ministry of Housing, the average Spanish house price has risen by 89 per cent in the last four years, to around £119,519. This is most obvious in the major cities, with Madrid seeing a 117 per cent growth since 2001, taking the 2004 average price in the city to £242,680. Average prices in Barcelona have increased by 97 per cent to £226,666.

Yet buyers looking for a bargain can still find one outside Spain's largest two cities. In Valencia, which also has quality housing stock, average prices stand at a more tempting £111,340, while tourist resorts Alicante (£136,247) and Malaga (£132,715) are still reasonable.

Esden says: "In the popular areas, prices have gone up a lot in recent years. But if you start looking at less popular areas, particularly inland, there are bargains. Even in the traditionally popular areas, if you look inland, where you walk a few minutes to the coast, it is much cheaper than a beachfront apartment."

While in past years most Brits have stuck to tourist areas like Benidorm, the desire to experience 'real' Spanish culture and escape the high costs of housing has driven many buyers inland.

Areas of the Andalusia region of southern Spain have seen popularity increase dramatically, with the whitewashed towns leaving an impression on tourists and encouraging them to invest. The neighbouring historic region of Murcia is also growing in popularity and is appreciated by those looking for a place in the sun away from the crowds.

Miki Reeder, director of the Homes Overseas Exhibition, says he is a 'Spanophile' and insists there's much more to Spain than booze, Benidorm and beaches: "Spain is like a continent within a country. Inland there are lakes, national parks and wildlife not found in the rest of Europe. When meeting local people, it's like stepping back 50 years, to a time when people were really decent to each other.

"There's a real charm about the interior, while there's nothing Spanish about coastal towns now. The things people fell in love with in Spain 20 or 30 years ago still exist, but only inland."

Rustic charm is perhaps still easier to locate in France, where four in every ten international property sales are to Britons, a figure which has doubled in the past five years. Again, this has had an effect on house prices, with popular cities seeing huge increases. In Nice, the average house price is now £256,389, while in Montpellier, average prices have risen from £60,331 in 2001 to £147,291 in 2005, a 144 per cent increase.

Reeder says rather than a desire to enjoy a place in the sun or to see France as an investment, most people buy there because of a love of the culture and see it as a place they would like to retire to. He explains: "France is a huge, underpopulated country, so property and farms have been very undervalued.

"But most people buy in France because they are 'Francophiles' and love France - its culture, people, food, wine and the generally relaxed way of life. France can still represent good value for money, although that is not a key motivator.

"Investment and France do not really sit together. The key motivators are holiday homes and eventual retirements." Access has been helped by 'no-frills' cheap flights to many smaller airports across France, although the Channel Tunnel and regular ferry services remain popular.

Yet there are downsides to France - planning laws can be tough and you need to be fully aware of the complex tax system (see below), which can add substantially to costs.

Spain too is not without its pitfalls - taxes, especially income tax, have risen substantially in recent years and you should expect to pay more than at home. Beware of taxes being levied on worldwide assets, rather than just on the value of a property in Spain.

There is also a specific property tax - Impuesto sobre Bienes Inmuebles (IBI) - which varies widely between both areas and properties.

Whether investing in France or Spain, the message is the same - get good advice upfront and find someone to explain everything clearly to avoid nasty surprises.

WHERE TO BUY: FRANCE, SPAIN OR ITALY?

FRANCE: PROS

• High standard of living
• Stable economy
• Politically stable
• High life expectancy (79.6)
• High levels of house price growth in last four years - most regions have seen annual rises of around 12 per cent
• Large amount of British-owned properties - 40 per cent of all international sales are to UK nationals.
• Very accessible - good air and sea links, great roads

FRANCE: CONS

• Highly complex system of property taxation. If buying in France, you will need to pay: a registration tax (7.5 per cent); taxe fonciere - a tax on ownership of a property; taxe d'habitation - tax paid by the resident of a property. Wealth tax will be paid on assets if, combined, they are worth above £488,000
• Prohibitive planning laws can be a real nuisance
• Good weather not guaranteed

SPAIN: PROS

• Good weather (almost) guaranteed
• High levels of house price inflation show no signs of slowing - forecasts of continued growth
• Stable economy
• Booming tourism market means almost guaranteed demand for rental
• Many hidden gems inland, where a real taste of Spanish life can be experienced, at reasonable prices

SPAIN: CONS

• House price inflation has pushed average prices in the main tourism areas very high.
• There are a range of taxes; income tax is high and there is a specific property tax which can vary widely by region
• Coastal areas have lost their Spanish appeal due to the numbers of foreign buyers in the area
• Some areas are remote from public transport and airports - less of a problem in France

ITALY: PROS

• No inheritance tax - makes it ideal for retiring
• Law is strongly in favour of the purchaser
• Large stock of older, run-down properties at low prices
• With properties in the popular Tuscany and Umbria areas seeing high inflation, Le Marche in central, inland Italy can offer a lot to the astute buyer - it has been untouched for generations inland
• Increasing number of low-cost flights

ITALY: CONS

• Not good for investment - Italians see a property as a home for life, so low turnover tends to keep prices fairly stable
• If you're seen to be speculating on property and sell up within five years, you will suffer extra taxation
• Higher registration tax for foreign buyers
• The entire purchasing process is very protracted and can often take as long as six months