The island of Madeira hangs on to a faintly genteel, English air - a hangover from the days when Churchill and George Bernard Shaw were regular visitors to the famous Reid's Palace Hotel, where white-gloved ladies took tea on the verandah. However, look carefully and you will see signs of a new, 21st-century Madeira. The journey from the airport to the centre of the capital, Funchal, which was once an 80-minute white-knuckle drive around winding mountain roads, is now just a 20-minute jaunt, thanks to new highways. Supermarkets, top-quality restaurants and theme parks have also arrived in the major towns. It was not so long ago that this Portuguese colony, 350 miles off the North African coast, appeared to be solely the stamping ground of well-heeled buyers of a “certain age”. The typical Briton discovered Madeira as a stopover port on a cruise holiday, fell for it with all the passion of a holiday romance, then bought a holiday home here. It is easy to see the attraction. Funchal is a beautiful little city, built on the steep sides of a volcanic peak. Plant life grows in technicolour profusion and the climate is warmer than Portugal in winter, with an average temperature of about 18C (64F), yet cooler than Portugal in summer at about 24C (75F).

Now a younger generation has arrived. “The time-share business, together with relocation of several company head offices, has brought an influx of younger people to the island,” says Tracy Pfaff, editor of The Brit, the local newspaper for expats. “Couples in their thirties and forties with children tend to drop anchor first in Funchal, then move on to Canico, where apartments are particularly popular, or Calheta, 30 minutes away, which is very pretty.”

Property prices are reasonable. You can buy a simple two-bedroom cottage for about £110,000 and you will pick up a more modern apartment with good sea views for £130,000. A secluded 200-year-old quinta, or small estate, could cost more than £2 million.

Golf is big in Madeira, but if fishing is your thing you can take out a boat and do battle, Hemingway-style, with giant marlin. It is not unusual for 600lb monsters to be landed. There are no beaches, but the outdoor lidos, with saltwater swimming pools, are a fair substitute. And there is stunning scenery, with 2,000km (1,242 miles) of walks alongside the levadas - the island's ancient irrigation channels.

“It's a great life here for young families,” says Jonathan Fletcher, 40, a golf instructor who was brought up in Richmond, Surrey, but who now lives in Funchal with his wife Tanya, 34, and daughters Maya, 5, and Mischa, 3. “Funchal has all the amenities of a modern city, such as health clubs, spas, cinemas and clubs, yet it is a very safe environment for the children. The state crèches and junior schools are excellent.”

More active overseas buyers are likely to be interested in Palheiro Village, a development of 85 apartments and villas that should be finished by the end of 2008. This gated estate, which is perched near the top of the hill overlooking Funchal, has its own 18-hole championship golf course, and when it is finished it will also have its own “forum” style building incorporating a swimming pool, bar, children's pool, sun deck and meeting room. Prices start at €335,000 (£265,000) for a one-bedroom apartment and go up to €415,000 for a two-bed, while villas range between €730,000 for a three-bed and go up to €1.654 million for a top-end home. There is an annual service charge of €3,000-€5,000.

“These property prices are at least 30 per cent below the Algarve,” says Roger Still, who worked on the renowned Quinta do Lago development in Portugal. “Since we started selling the homes off-plan we have seen prices appreciate by at least 10 per cent per annum.” But there is no chance of Madeira being swamped by similar developments: about 70 per cent of the island is designated as protected national park.

It is easy to see the attraction of Madeira, particularly if you can work from home on the internet. However, the hilly topography would mean driving your children around everywhere by car. And although the schooling is fine at primary level, many have their reservations about local provision for the teenage years. Boarding back in the UK, a three-hour flight away, would be the probable solution.

What would really make the move to Madeira worthwhile? “It's the simple peace of mind you enjoy from living in such a safe, crime-free society,” says Anne Marchington, a fortysomething originally from near Barmouth, North Wales, with two children aged under seven. “I was sitting, waiting for a performance of the ballet to begin last year and a gentleman sat next to me. It was Alberto Jardim, the President - Madeira's equivalent of Gordon Brown. Yet he was alone, with no security guards and he was perfectly safe. It's that kind of place.”

Fact file

Madeira is part of Portugal, so EU nationals can buy property there.

Capital gains tax of 25 per cent is payable by non-residents.

Stamp duty is 0.8 per cent of the property's purchase price.

Palheiro Estate: 00 351 291 794015, palheiroestate.com

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