Thanks to its perfect climate, Marbella has been Spain’s flagship holiday resort ever since Prince Alfonso von Hohenlohe, who founded the swanky Marbella Club, put it on the map with his jet-set friends back in 50s. But no amount of good weather can cover up the town’s recent troubles. A massive corruption scandal means that 86 local bigwigs – including developers, lawyers, and the previous two mayors –now face trial, primarily on charges of bribery relating to building licences, and British owners of ‘illegal’ properties face demolition.

Marbella’s corruption problems go back to 1991, when a local developer called Jesus Gil – now dead – was elected mayor. In 1998 he introduced an urban plan, never approved by the government in Seville, under which illegal building licences for 30,000 properties were granted in return for bribes, though only 19,000 were actually built before the clampdown in 2006. Gil’s town planning advisor, Juan Antonio Roca, is accused of netting 120 million Euros from corruption. He is in jail, unable to pay the bail that judge Miguel Ángel Torres has set at 1.2 billion Euros.

The scandal has taken its toll on Marbella’s property market, which has had a terrible few years. British buyers in particular have been repelled by the corruption, legal insecurities, and dodgy practises, not to mention over development created by the illegal urban plan.

“British purchases are down something like 70% since 2003,” says Chris McCarthy, head of local agency Viva Estates. “Property prices peaked that year, and our average sale price of 325,000 Euros hasn’t budged since then. June was the worst month in 5 years, and a lot of agencies are downsizing or closing.”

The top of the market hasn’t escaped unscathed either. “Leading up to the new millennium we had 20% per annum capital gains for 5 years, but it’s been downhill since 2001,” explains Diana Morales, head of the eponymous high-end agency.

Rebuilding Marbella’s damaged reputation, and restoring confidence in its property market is the job now facing Maria Angeles Muñoz, 47, the new mayoress of Marbella, who swept to power with a landslide victory in May. Given that the town hall is now skint after years of plunder, she faces a daunting task.

Pretty, with green eyes and blonde hair, Mayoress Muñoz was a GP who went into local politics before a stint in Madrid as a junior minister in the previous national government of the right-of-centre Popular Party. Businesslike and sophisticated, she makes a refreshing change from the farcical leaders Marbella has elected in the past.

Many of Marbella’s problems can be traced back to venal politicians, so establishing an honest administration has to be the main priority. It helps that the Popular Party she represents is the only one not implicated in Marbella’s corruption scandal, but her political opponents suggest that conflicts of interest – her Swedish husband is a local businessman with property interests – will undermine her ability to do the job. Mayoress Muñoz denies this.

Speaking exclusively to the ST in the deputy mayor’s office in the San Pedro de Alcantara district, the stylishly-dressed Mayoress explained the plans to sort out the property market.

“We are going remove the legal insecurity so that buyers can feel confident again. To do this we will have to legalise practically all the 19,000 properties that were built with illegal licences.”

The properties will be legalised in a new urban plan that has been drawn up by the regional government in Seville, and given unanimous preliminary approval by Marbella’s new town council. Mayoress Muñoz expects the plan to be given final approval by Seville early next year.

Legalising properties built on land zoned for other uses, such as parks and public facilities, means that the town “will have to be compensated with land for new infrastructure and facilities,” says the Mayoress. Developers who benefited from illegal licences granted under previous mayors are expected to provide the land, and the “almost all the developers have already agreed to this,” she says.

In all some 18,000 properties will be legalised in return for around 188 hectares of land. But 752 properties will not be legalised because planners argue they have been built on ground that is too essential to town facilities. 377 of these have been purchased by innocent buyers, including Britons, most of them in the Banana Beach development, just outside Marbella. Judicial proceedings are expected to result in demolition orders for the unlucky owners.

The Mayoress hopes it will never come to this. “I do not believe that demolitions are an appropriate solution for Marbella, and I will do everything in my power to protect the interests of innocent buyers,” she says. Polls show that 70% of Marbella’s residents are against demolitions.

Her options, however, are limited. “We will appeal against demolition orders,” she says, but at best that will leave owners at Banana Beach in legal limbo for years, perhaps indefinitely.

Some of the affected owners would prefer swift demolition and compensation to the legal limbo. “I haven’t been able to get a straight answer from anyone in 5 years, and this looks set to drag on forever, trapping us at a time of life when time is scarce,” complains pensioner Russell Ellis, 63, from Sidmouth, Devon, who spent 189,000 Euros in 2002 on a 2-bed apartment in Banana Beach. “I would prefer a decision tomorrow, even a bad one, so that we can move on, but I’m not holding my breath.”

John Toomey, 61, and his Spanish wife Marisa, 61, bought at Banana Beach in 2004, when the cost of a 3-bed apartment with sea views such as theirs had risen to around 500,000 Euros.

“It was entirely legal when we bought it, and we took great care with the legal search, using a local lawyer,” explains John, a property lawyer in Harrow, who understands the issues better than most. “There was a building licence from the town hall, the deeds were signed before a notary, and there was no record of any problems in the property register, which by law should give you all the assurances you need.”

The Toomeys are understandably bitter about the injustice they have suffered. “The government in Seville was happy to take tens of thousands of Euros from us in stamp duty, but now say our property is illegal, whilst arbitrarily legalising thousands of others,” says John. “Seville is treating us like criminals, and has never expressed the slightest sympathy, even though they are ultimately to blame for the situation. We trusted the system, only to end up innocent victims of the public administration’s corruption and incompetence.”

The Toomey’s would also prefer a swift decision, but at least they are in a better position than others to sit it out. “One British couple who own at Banana Beach are in their mid-80s,” explains John. “It is their only home, they need to move to a nursing home, and they can’t sell, so they are stuck. It is a terrible situation.”

The unlucky owners at Banana Beach look like scapegoats, and the plan has other failings too. “What will happen in cases where the developer can’t or won’t compensate the town hall for legalisation?” asks Diana Morales, who fears more confusion. Some also argue that the amnesty creates a moral hazard, but the fact is that most British owners will benefit if the market starts to function normally again. So with a new urban plan, a new municipal government, and several major infrastructure projects underway that will significantly improve access, might Marbella make a comeback?

Optimism certainly seems to be creeping back into Marbella’s property sector. “The worst is definitely behind us,” says Desmond O’Connor, head of blue chip developer Alanda Homes, the Spanish division McInerney plc – Ireland’s largest homebuilder. Michael Hornung, director of Marbella Club Real Estate – the property division of the exclusive Marbella Club – also feels Marbella is turning the corner. “Wealthy buyers are coming back Marbella,” says Hornung. “They know Marbella is cleaning up, even if it is not yet widely appreciated.”

Diana Morales reports that sales have started to improve this year, and according to Viva’s McCarthy, “July was an excellent month.” McCarthy believes that the market touched bottom in June and the recovery is now underway. “The recovery would have started earlier this year if it hadn’t been for the misleading Spanish property crash headlines in the UK,” he says.

James Hewitt is one Briton who believes in Marbella’s future. Hewitt, 49, once an intimate friend of Princess Diana, moved to Marbella a year ago with plans to set up a colonial style bar restaurant.

“It will have a champagne bar and great food, with an atmosphere like a polo or colonial club,” explains Hewitt, a keen polo player who used to be an officer in the Life Guards.

Hewitt is renting an apartment in Marbella until he gets his business is off the ground, after which he will look to buy. “The quality of life here is still unbeatable, and that will always attract people to Marbella,” argues Hewitt. “My quality of life here is 3 times better than in London, for a quarter of the price. With the climate and outdoor lifestyle I feel like I’m living 600 days a year, I just hope I don’t burn out twice as quickly.”

Hewitt’s optimism stems from the belief that Marbella’s recent problems will soon be history, whilst the fundamental attractions of climate, quality of life, leisure facilities, and good access will remain. Once people realise that Marbella is now squeaky clean and good value – given that prices haven’t risen in 3 years – buyers will be tempted back, or so the theory goes.

There are grounds for cautious optimism, but Marbella is not out of the woods yet, and a wider downturn in the Spanish market – not out of the question – could easily derail any recovery in Marbella. But even if the market does recovery it will be of little comfort to the owners at Banana Beach. “If they can revoke planning permission long after any statutory period has past then you can’t trust the public administration in Andalusia, so be warned,” says John Toomey.