Investment speculators led the influx, snapping up houses, apartments and plots of land wedged between Montenegro’s craggy mountains and its glimmering Adriatic coastline.

But, with the speculators having moved on to Albania after arriving from Croatia, the buyers today are a mixture of foreigners - mainly Russians, Britons and Irish citizens - looking for a place in the sun.

“When my son decided to buy a flat in Montenegro, I didn’t even know where it was, but it sounded exotic,” said Margaret Hodgson, who moved with her husband to the Bay of Kotor last year from a town near York, in northeastern Britain.

“So we came down to spend a week here, and decided to buy a flat too. Here in the bay it is fabulous. We like the people and the food is excellent,” said the tanned Englishwoman, beaming with a smile.

Along with Budva, Kotor’s old city - which is listed as world heritage site by the UNESCO (UN Educational, Scientific and Cultural Organisation) for its well-preserved medieval structures - is one of the most popular tourist destinations in Montenegro, situated in a secluded part of a gulf described by some as Europe’s southernmost fjord.

Other major attractions include the iconic island of Sveti Stefan, which features luxurious stone houses whose guests have included film stars such as Elizabeth Taylor and Sylvester Stallone.

In January, Sveti Stefan’s famed hotel was leased out for 30 years to Singapore’s Aman Resorts in a deal that also included two other Montenegrin beach resorts.

Among the celebrities reportedly showing an interest in the former communist republic are the US actor Michael Douglas, ex-Formula One champion Michael Schumacher, the Williams tennis sisters and businessmen like US property tycoon Donald Trump.

Roman Abramovich, the Russian billionaire who owns English football club Chelsea, has been buying up land along the Ulcinj riviera, further down the coast near the Albanian border, local residents told AFP.

The oil oligarch has focussed on Velika Plaza, a 13-kilometre-long (eight miles) stretch of beach where he reportedly wants to build a luxury tourist resort.

Another project launched since Montenegro broke away from a union with Serbia in June 2006 following a historic independence referendum involves Canadian businessman Peter Munck.

In October, Munck signed a deal with the government to buy a military shipyard and develop a stretch of coastline in Tivat, which has an airport that links the coast with European capitals.

“The arrival of Canadian millionaire Peter Munck in Tivat caused prices to explode in this small town, where a square metre currently sells for between 2,000 and 2,500 euros (2,700-3,300 dollars),” said Dragan Kascelan, a local property agent.

That is part of a trend that has seen prices on Montenegro’s 200-kilometre (125-mile) coastline soar by up to 100% in a year, according to property agents.

Although some local experts predict stagnation, a report this month by global real estate agents Colliers International said the growth “shows no sign of slowing down.”

“Montenegro’s coastline has become one of the most potent property investment markets in the world, as our research shows,” said Jovan Jovanovic from the Serbian branch of Colliers.

“Revenue from the sale of real estate in Montenegro has increased by 400% in just two years, according to official figures,” said Jovanovic.

While the property boom has only made a slight impact on the Montenegrin economy, which posted growth of 4.5% in 2006, it is far more noticeable on the winding roads linking the capital Podgorica with the coast.

Lorries loaded with bricks and other materials clog the route, along which an increasing number of warehouses have sprung up to provide a steady supply for new constructions.

For the Hodgsons, there are no concerns however that the building boom might spiral out of control and harm the ambience of their new hometown.

“We don’t want to see concrete buildings all the way around. Unlike in Budva, this area has a great harmony,” said Michael. “We don’t think that the bay will get overdeveloped.”