News that thousands of homes owned by Britons on the Costa del Sol will not be demolished, despite being declared illegal, should help to stimulate the moribund property market in Spain.

Steep price falls and bumper discounts on some new-build homes, as well as the gradual strengthening of sterling, are also increasing the country’s attractiveness to cash-rich British investors.

Foreign exchange companies have noticed a significant upturn. Currencies Direct, for example, says that the number of its UK-based clients buying euros to purchase European homes has risen sharply over the past few weeks, with a 20 per cent increase in the number of its clients exchanging more than £200,000 into euros.

The Junta de Andalusia, the regional government, is due to make a final decision on the “illegal” homes later this year but is expected to announce that it will not knock down the majority of the estimated 18,000 properties without proper building licences in Marbella and other parts of the Costa del Sol. These flats or villas were built with bogus licences after corrupt council officials and councillors took bribes from some developers to by-pass planning laws.

Since the previous Marbella city council was dissolved after a widespread corruption scandal in 2006, planners have sought a solution that enforces the law but does not deter future homebuyers. Hence, after nearly three years of uncertainty, British homeowners who feared that their properties could be demolished are set to be given a reprieve.

The Junta de Andalusia does not plan to punish owners who bought in good faith. Of the 18,000 “illegal” properties, most will be declared legal and left standing. About 400 flats in Marbella, which were built on designated green areas or in an area near the sea where building is forbidden, are the only properties whose fate has not been decided. The developers responsible for obtaining licences by illegal means will, however, be punished.

In the Urban Plan (PGOU), which is likely to come into force early next year, the regional authorities in Andalusia — and particularly Marbella, where many Britons have homes — are to force the offending developers to hand over other plots of land that they own for use for public projects such as parks or sports centres. The Urban Plan has been provisionally approved but needs final approval.

A spokesman for Marbella city council says: “What does not make any sense is that those who bought the properties in good faith and were not advised by the authorities of the illegality of their properties should pay compensation.”

But the glut of new-build properties remains a problem. Across Spain, developers are being forced to offer huge discounts in an increasingly desperate effort to sell these homes. Metrovacesa is running a campaign with discounts of up to 55 per cent on the Costa del Sol; the company sold two thirds of the 247 flats available in the promotion. Habitat, another struggling Spanish developer, is selling homes at up to 32 per cent off.

Jorge Rodriguez, of the consultant Real Estate Marketing, says: “We are seeing much more aggressive campaigns. But how much money they are prepared to lose remains to be seen.”

The Junta de Andalusia claims that many developers are willing to pay compensation in the form of a land swap because most still have substantial business interests on the Costa del Sol. But some industry experts doubt whether developers will be capable of handing over large plots of land because many are finding it hard to stay in business.

Ben Marson, of Safe Buying Experience, which vets developers for buyers, says: “Most of the developers do not have any money to pay fines or give up land as most are deeply in debt. The banks which the developers owe money to will certainly not want to pay any kind of compensation.”

There are clear signs already that buyers are taking advantage of the discounts available. Christopher Clover, owner of Panorama Properties in Marbella, says that buyers are going for the best locations such as the Golden Mile or the Sierra Blanca. Properties valued from €300,000 (£263,000) to €1 million are being snapped up. “The kind of people who are buying are mostly international buyers. Some are taking out mortgages of up to 65 and 75 per cent of the price or they are cash buyers,” he says. “Some of these cash buyers have waited until the market is right and want to take advantage now.”

Victor Sague, marketing director of Taylor Woodrow España, says that so far this year the company has sold 13 luxury flats priced from €200,000 on the Costa del Sol. To entice buyers it has offered discounts of up to 30 per cent. The company sold eight flats at its Las Encinas golf development and five at its Los Robles development. “Most of the buyers are bargain hunters. They are British, Dutch, Belgian and Spanish. They are going for good locations and for good flats.”

Properties that are struggling to sell are new-builds in less desirable areas or in “urbanizaciones” — new upmarket housing estates — that have not been finished. Some Spanish savings banks, such as CajaSur, are setting up companies to sell off these unfinished developments at auction.

Buyers are also taking advantage of “distressed sellers” — people who are in financial difficulties and have to dispose of their properties quickly. One wealthy British owner of a €3 million villa in Marbella, who lost heavily in the credit crunch, is offering his luxury property with a €1 million discount.

Mark Stucklin, a property consultant who runs the website Spanish Property Insight, says: “Generally what we are seeing on the Costa del Sol is a flight to quality. People want good stuff in good locations and are taking advantage of the discounts.”

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