Drive along the newly tarred motorway in Cyprus, with the sparkling Mediterranean on one side and scrubby green hillsides on the other, and your view is punctuated not by herds of goats or Greek Orthodox churches, but by hoardings advertising properties for sale.

Sun-bleached images of pastel- coloured villas set around swimming pools are selling the dream: a cheap house on a sunny island, where prices are 30% below those in Spain.

Over the years, Cyprus has built up something of a “chic as chips” reputation, a result of the boom in package holidays that has left much of the island’s coastline scarred with lines of concrete hotels and apartment blocks, Irish theme bars and fast-food restaurants. But Cyprus, the largest island in the Mediterranean, is already moving upmarket — and the government believes that “residential tourism” will provide the best way forward.

According to the Cyprus land registry, 12,000 British people, constituting 1.5% of the population, already own homes on the island — the same proportion of Brits who own properties in France. The British have been buying on the southern half of Cyprus, especially near Paphos, for 20-30 years, but the past two years have seen them moving further afield, to Polis, north of Paphos, and to hillsides with sea views near Limassol on the southern coast and near Larnaca, in the east, where prices are up to 30% cheaper. Interest from well-heeled British buyers will be key to the success — or failure — of the attempt to push Cypriot holiday homes upmarket.

Work has started on the expansion of Paphos airport, and there are plans to build 1,000 berths at the Coral Bay Marina, to help tempt wealthy yachtsmen. Last year the government also launched a new golf policy, which could increase the number of 18-hole courses on the island from three to 14. At Aphrodite Hills, one of the biggest new housing developments trying to woo a richer clientele, about 60% of homeowners are British, says Loucas Kitrou, the real estate manager, but “only a third of them play golf”. They are buying by the greens and alongside the fairways because, as Kitrou says, golf “adds as much as 40% to the value of a property”.

A self-contained resort just 20 minutes from Paphos airport, Aphrodite Hills is set in 578 acres, and when it is finished in 2008, it will have a total of 650 properties. It also has an InterContinental hotel, a tennis academy and a “village square”, surrounded by cafes, restaurants, a chemist, a shop and a church.

In 2000, when the resort was nothing but bare earth, you could buy a three-bed townhouse for £83,500-£95,500 (and that’s sterling, not Cypriot pounds). A similar property now costs £240,000. The penultimate phase of the development, Zephyros village, was launched last month, with villa prices starting at £690,000 and rising beyond £1.1m for a four-bed property with a private pool.

“Prices have gone up a lot, as has the calibre of client,” says Kitrou. “If you can pay £955,000 for a villa, then you are willing to spend more on the extras, like a built-in barbecue area. We created the market on the island.”

Part of that market includes self-build. Planning laws in Cyprus are strict, permitting only 10% of a plot to be built on. Designs are limited to a few colours and are encouraged to echo the traditional style of hillside villages, with red-tiled roofs and hardwood window frames.

For this reason, a number of British buyers, including Peter Dyoss, a financial director, have taken advantage of the existing planning permission and infrastructure at Aphrodite Hills to build their own homes there. Dyoss has bought two plots, on which he has built one large villa, using his own architect.

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“I could see that the quality of civil engineering — the roads, the sewers, and so on — was better than what I’d seen elsewhere on the island,” he says.

Dyoss, 67, and his wife Angela, 62, who live near Bournemouth, have spent the past 18 months building a 3,500sq ft villa at the Cypriot resort at a cost of £537,000. It has four bedrooms, a walk-in wardrobe in beech wood, a study, a large infinity swimming pool and an underground garage.

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