Tenerife attracts the champagne set; but has bargain property prices

When Darren Richards sold DirectDirect.com, the online dating service he founded, for almost £30m last year, it wasn't to the obvious millionaires' playgrounds that he headed with his spoils. He bypassed the palm-fringed beaches of the Caribbean, gave Marbella's gated communities a wide berth and Dubai's Palm Jumeirah a miss. Instead, he chose that winter-sun hot spot so beloved of the British holiday-maker: Tenerife.

"I was here on holiday last May," says the 41-year-old from Kidderminster, Worcestershire, "sitting in a bar in Playa de las Americas with a friend, and I just thought, 'This is the life. Let's buy a bar.' " The series of resorts in the southwestern corner of the island, stretching a few miles north along the coast from the former fishing village of Los Cristianos, through Playa de las Americas and beyond, tend to conjure up images of 24-hour partying and cheap package holidays rather than millionaires looking for the high life. Yet Richards, single, despite his professional experience of the dating game, fell in love with the island, where temperatures in January and February regularly hit a balmy 25 degrees. "I think it's great," he says. "Everything is here. And, with just a four-hour flight, I can easily commute back to England when I need to go."

He now owns two bars, a two-bedroom flat, bought for about £165,000, and a two-bed, five-storey £890,000 villa in Torviscas Alto. In this dramatic hillside area, on the outskirts of Playa de las Americas, a typical fourbed villa with private pool will not leave you much change from £600,000.

He has just bought another nearby home for £1.4m. Known locally as "Puff Daddy's villa" for its sheer luxuriousness and no-holds-barred furnishings, it was completed last year for a wealthy German. Along with seven bedrooms, Richards inherited ornate Versace-stamped glasswork, red-velvet Bretz chairs shaped as musical notes - each worth thousands of pounds and with its own document of authenticity - and views of the neighbouring Canary island of La Gomera.

"I've also got a 50ft Sunseeker moored down there in Puerto Colon," he says, as he stands on his landscaped terrace, pointing out the marina in the distance. "The only problem is the pound/euro exchange rate [1:1.3]. It's a killer."

A few minutes' drive away, in the hills of San Eugenio, again overlooking Las Americas, sits a palatial mansion for sale at £4.1m - a record-breaking price for the area, and probably the whole island. With 1,500 square metres of living space, the villa has five bedrooms, all with ensuite bathrooms, three reception rooms and a huge pool area with far-reaching ocean views. SpencerGrindley Exclusive Homes, the agency selling the villa, says "a famous European pop star", keen to build a recording studio in the basement, has shown interest. Elton John visited the island in January to perform his first show there - but nobody is saying if it's him.

The style of such villas - not to mention their price tags - illustrates the sharp move upmarket of what used to be considered one of Spain's less prestigious destinations. A 15-minute walk west of the boardwalk bars and gaming lounges of Las Americas is the beachside strip known as Costa Adeje, and its hottest new spot, Playa del Duque. Portrayed by estate agents and hoteliers alike as evidence of the new celebrity-strewn Tenerife, the area is thoughtfully planned, with five-star hotels and a pristine, white-sand beach with trendy bars, where you can lie back on a cream-cushioned lounger and enjoy a glass of Viña Norte, the local wine. It also has a shopping centre, the Plaza del Duque, full of designer brands.

The five-star Gran Hotel Bahia del Duque, with recently built luxury villas and a brand new spa, is a favourite with Mariah Carey and J.Lo and her husband, Marc Anthony. Opposite the beach, Habitats el Duque, an ultramodern development of grey stone and white concrete villas, is almost complete. One of the flats, with three bedrooms, three bathrooms and Poggenpohl kitchen, is being marketed by Del Duque Properties for £690,000.

For something more traditional, go to neighbouring Fañabe beach (the "Mayfair of Tenerife", as the island's estate agents like to call it), where the Villas del Duque complex is situated. A three-bedroom candy-coloured villa here, with balcony, marble-tiled floors and a private pool, is for sale with Tenerife Property Shop from about £400,000. As everywhere in this area, you are only ever a stone's throw from the Sahara-sand beach and the pristine greens of Golf Costa Adeje.

However, if you are more of an architecture junkie than a golfing or shopping one, thesouthwestern littoral of Tenerife has something else to offer: innovative design. Palm Mar, a new residential area 10 minutes' drive south of Playa de las Americas, is a world away from the 1960s-style blocks and multi-pool resorts of old.

Combining award-winning architecture with a nature-reserve setting, a mountain-range backdrop and Atlantic views, Las Olas is an ultramodern complex of flats, set around lagoon-style pools, waterfalls and 500 palm trees. Plus, it has views up to the snowy peak of Mount Teide - Spain's highest mountain - in the centre of the island. Two-bed flats, due for completion later this year, cost from £170,000; two-bedroom penthouses, with private plunge pools on wooden decks, cost from £315,000, through Tenerife Property Shop.

If you want something more hands-on, head inland, where there are plenty of opportunities to get your teeth into a renovation project and create a home in near-perfect peace and rural beauty. "These days, there's a more discerning type of Brit looking for properties in the countryside, so they can get away from it all," says Lee Morfitt, director of Crossley Morfitt & Lennox estate agency. "And you get much more of a feel for the island's rural culture." Morfitt says there are a number of run-down farmhouses for sale, ready to be transformed.

For example, take the single-track road from Costa Adeje towards the improbably shaped volcanic peak of El Chorro, set among dramatic green hills and indigenous cacti, and it's not hard to imagine the traditional life of a Tinerfeño. Here, 3,000 ft above sea level, where the air is cool, you are in hikers' heaven, yet only a 20-minute drive from the beach. Crossley Morfitt & Lennox is marketing a 90 square metre brick-and-timber finca, complete with a turning circle for a donkey plough, on a 5,000 square metre plot, with views over the Atlantic, for £70,000. Morfitt estimates full renovation would cost £150,000.

So who is actually buying here, and is it a good bet? About 42,000 Britons now own property in Tenerife, continuing a connection that began in 1797 when Nelson lost his arm in the battle of Santa Cruz. Leslie Beeson, of Tenerife Property Shop estate agency, based in Playa de las Americas, says the clientele has changed dramatically over the past decade. "People used to come here wanting to turn a fast buck on a holiday home, but increasingly, they are planning for their future," he says. "They are on the run from the British weather, looking for good quality of life. They also have a lot more money to spend than, say, 10 years ago."

Bill Blevins, director of Blevins Franks International, which provides financial advice to expatriates throughout Europe, thinks Tenerife is still underpriced compared to the rest of Spain. "It's a good long-term bet," he says. "High-density tourism is bringing better-quality homes and resorts, plus golf courses, and the infrastructure on the island has been greatly improved in recent years."

So far, at least, Tenerife has been immune to the drastic price drops experienced on the mainland, but with prices generally 30% lower than on the Costas, there is plenty of affordable property. If you don't mind the occasional waft of McDonald's floating past, you can still buy a roomy one-bed flat, with beach views and use of a shared pool, for less than £100,000, near the nightspots of Playa de las Americas. And, these days, you'll be more than likely to bump into a multimillionaire.

Del Duque Properties (00 34 922 718192, http://www.delduqueproperties.com/); SpencerGrindley Exclusive Homes (00 34 922 718041, http://www.spencergrindleyexclusivehomes.com/); Tenerife Property Shop (0871 871 6131, http://www.tenerifepropertyshop.com/)

How to buy in the Canaries

Seven main islands and a number of islets make up the Canaries, a volcanic archipelago in the Atlantic Ocean off the northwest coast of Africa. Tenerife, the largest, is the most popular destination for British buyers, although Lanzarote, with its striking landscape and traditional rural architecture, comes a close second. Despite being part of Spain, the islands have their own laws and some control over taxation - with advantages for British buyers. Instead of about 7% Vat, between 5% and 6.5% of IGIC (general indirect tax of the Canary Islands) is payable, depending on whether the property is a resale or new-build. A new law has just been passed stating that anyone who has been resident in the Canaries for more than five years is exempt from inheritance tax.

Canary row

In Arona, half an hour inland from Playa de las Americas, a traditional Canarian townhouse has four bedrooms and is decorated with frescoes by its artist owners.

For sale for £395,000, with Crossley, Morfitt & Lennox; 0871 781 0007, http://www.cmltenerife.com/

A one-bedroom flat, in the peaceful, traditional fishing village of La Caleta, is a five-minute drive from the nightlife and beaches of Playa de las Americas.

For sale for £154,000, with Crossley, Morfitt & Lennox; 0871 781 0007, http://www.cmltenerife.com/

In the Duquesa del Mar development, in the golfing mecca of Golf del Sur, a one-bedroom flat has two bathrooms and use of a shared swimming pool.

For sale for £145,000, with Clear Blue Skies; 00 34 922 714772, http://www.clearbluetenerife.com/

A newly restored 1734 townhouse, in the centre of La Orotava, a baroque city in the north of the island, has three bedrooms, traditional Canarian balconies and a private courtyard.

For sale for £945,000, with Immobiliaria Steinert; 00 34 922 388255, http://www.steinert-invest.com/