Profile: Kotor The smallest of the six post-Yuglosalv republics found its place in the property sun after featuring on English TV last year. And prices are rising fast, Brendan Glacken discovers

Up until last Christmas there were only two property agencies operating in Montenegro. Then the popular Channel 4 programme A Place in the Sun featured the area very positively, resulting in a stampede, not only of investors, but of new agencies.

"Some of these were "very odd indeed", according to Ljiljana Gellately-Smith and her English husband Robin, a building surveyor, who run Montenegro Enterprises from the city of Kotor. "Now, the market has gone mad, especially around the Boka Kotorska, the bay of Kotor. It's all new to Montenegrans, with hordes of would-be buyers arriving. And as soon as one person pays a silly price for a property, word gets around."

So despite the relatively low prices by Irish standards, buying property in Montenegro is very much a case of "buyer beware".

Montenegro is the smallest of the six post-Yugoslav republics and no doubt many people would still find it difficult to pinpoint it on a map of Europe.

Currently in a "loose federation" with Serbia, it remains relatively undiscovered, is a lot less expensive to visit than neighbouring Croatia, and can boast mountains, ski resorts, numerous lakes and a small but beautiful coastline. It is also the only country outside the EU to have the euro as its official currency.

All of this naturally makes it attractive to would-be owners of holiday homes.

Certainly, when one sees the laidback lifestyle along the bay of Kotor, a UNESCO-listed world heritage site, with people enjoying the sea literally outside their doors, and their little boats docked in individual miniature harbours or "puntas", the attractions are obvious. By the way, local beer and wine costs 50 cent per glass.

Nevertheless, the property market is not so idyllically simple. According to Robin and Ljiljana, would-be British buyers are often confused: "They look at Montenegro property prices on the internet, fly out in great excitement and then find that on the ground, prices are a good deal higher." In other words, some agencies are not giving the full facts on their websites.

"Meanwhile", says Ljiljana, "local agencies fight over limited stock . . . We are talking of a country the size of Wales, with just about 650,000 people -it's like one big family here."

Ljiljana has been running the agency with Robin's help for just a few months. So far, she says, it is all about maintaining standards.

To say the market is fluid is an understatement. It is full of uncertainties and pitfalls for the innocent buyer, and care is needed when making a purchasing agreement - "one can make enemies easily here".

In the old town of Kotor it is mostly English and Irish who are buying, with an increasing number of Russians. According to Robin, the Russians arrive with large amounts of cash and it is no secret that hot money is being laundered. Indeed the Government is now taking action in this area.

Prices are rising fast in Kotor's old town, which has a slightly ramshackle but also endearing appearance, with higgledy-piggledy squares, no names on its marble-paved streets and no cars allowed.

Before last Christmas, the average price per square metre of property there was €800; since then it has almost doubled, to €1,500. However, that still means one could pick up a two-bedroom 70sq m (753sq ft) apartment for a little over €100,000.

If you want to buy genuinely cheaply, Ljiljana's advice is to go inland - though a sea view is nothing special to Montenegrans: "To them, a balcony is just for hanging out washing".

Whatever the property chosen, she advises that "one should make an offer at the asking price - there is no point in a lower bid because as often as not, the asking price will rise quickly".

The would-be purchaser must then open a bank account in Montenegro, after which the property transaction goes ex-parte, with power of attorney given to the attorney or the agent.

A "pre-contract" is then entered into, equivalent to the Irish exchange of contract, and 10% of the agreed price is handed over. Within the pre-contract are all the details of the contract.

The handover date is next agreed and just like anywhere else it depends on the ability of the buyer to get the cash - forget about mortgages - and the seller to move out. Being personalised, the contract can allow for the purchase of the apartment contents and so on.

If the buyer fails to come up with the balance by the agreed date, the deposit is lost. On the other hand, if the vendor fails to transfer the property on the date, he or she must return twice the deposit to the buyer. This effectively cuts out gazumping.

Finally, one must pay a property purchase tax of 2 per cent of the official valuation price - which will not be much less than the actual price of the property.

It all that sounds complicated, it is nevertheless possible to complete a purchase in a day. Indeed, matters can move a little too fast.

According to Robin, what often happens is that an English buyer for example selects a property and returns to the UK to raise the deposit.

It then takes four or five days to route the cash through a German bank which handles these deals - but by that time the property has been sold for a higher price. "On two occasions I have heard of agents actually loaning deposits to buyers", says Robin - a dubious practice which seems more in the agent's advantage than that of the buyer.

Ljiljana puts it bluntly: "People must be very careful about agents and lawyers and how professional they are". She adds that it is an absolute necessity that if the purchaser is an English speaker then the lawyer too must speak English.

While newly-built apartments are beginning to come on stream, one is talking principally of a secondhand market. Auctions are unheard of while sale by tender only applies to large tracts of Government-owned land.

New laws in neighbouring Croatia, where prices have tripled in three years, now make it more difficult for foreigners to buy property, so Montenegro looks increasingly attractive, though it has less than 300 kilometres of coast.

According to Robin, property development in terms of property will be in two phases - "first the coast, then around Lake Skadar, then at the two ski resorts". The dearest area in which to buy is the island of Sveti Stefan, then the pretty town of Perast, on the bay of Kotor, then Kotor city itself.

As for rental, the yield is only about 3 per cent or 4 per cent, and since there are only about 90 real rental days, no one is going to make a fortune there. Capital appreciation is what it's all about at this stage.

For research purposes I went to see three houses near Kotor. One stood just across the narrow road from the sea, with "ponta" development clearly possible. Quite antiquated by Irish standards, with a very dated kitchen and bathroom, it was nevertheless attractive and simple. The asking price was €150,000.

Not far away, a bigger house with a great garden, and again close to the sea, was on offer for €180,000. The third, perched almost on the seashore, was in near falling-down condition, and on sale for €100,000. Definitely a restoration job - but the restored houses right beside it looked idyllic.

Getting there: fly to Dubrovnik, then drive across Croatian border, or take internal flights to Tivat or Podgorica. Or fly Ryanair to Ancona in Italy, then take the overnight ferry to Bar.