Snow is wrapped around an orange cement mixer on the top floor of a skeletal concrete structure. Labourers puff trails of warm breath as they build balconies. A tower crane swings above the shell that will become burnished black flats. Trams trundle past, their passengers hunkered down against -8C winds.

The yellowing slush by the kerb is the nearest thing to gold, but tourists and entrepreneurs are rushing to buy a slice of this unpromising scene. Investors from Japan, New Zealand, the US and particularly from Britain and Ireland are fuelling a property boom in Estonia.

Prices are written in Eek, the Estonian kroon, behind the frosty windows of an estate agent 300 metres from the building site. Estonians might be forgiven a squeak of horror at the spiralling prices, which rose by 28% last year, the highest rate in Europe, after a 25% jump in 2004, according to the Royal Institution of Chartered Surveyors. The price of many luxury flats in the city centre has risen by more than 70% in the past year.

When not revising her prices - 1,560,000 Eek (£67,000) for two bedrooms of communist chic in a dour grey panel block; 3,800,000 Eek for a funky Scandinavian-style four-bedroom residence with sauna - Sirje Soosalu deals with five inquiries a day from foreign buyers desperate to grab real estate in the former Soviet state.

The sleek black lines of the Foorum development in the capital, Tallinn, are typical. Every apartment in the first phase has been sold off-plan. There is a waiting list for the final 48 flats, which will be released in the next few days.

Confidence

Some buyers phone up and fork out thousands for apartments they will never see in a country they have never visited. Others are the fly-to-let crowd, lured in by the arrival of easyJet in 2004 and confident a stream of house-buying holidaymakers will follow.

"We get a lot of English tourists now. Some have come here and love it so they've prolonged their holiday and decided to buy something," said Ms Soosalu. "People from Ireland are the bravest investors because they've seen what has happened in their country after they joined the euro."

International speculators salivate at the sleek economic lines of the Baltic tiger, which has become one of the most open economies in the world since it shook off its Soviet shackles in 1991, earning a reputation as the Hong Kong of eastern Europe.

Historically a trading post between east and west, this heavily forested country of 1.4 million people is astonishingly hi-tech. Almost 90% of the population have access to the internet, 95% of banking transactions occur online and street parking in Tallinn is paid for over mobile phones.

Hyperbole takes hold. "Live in the future today," scream adverts for one new apartment block. Alternatively, why not splash out on an historic four-room wooden house in the country? It is, say the agents, "stove heated" with "water from well". In need of renovation, it at least has good transport links: there is a bus stop nearby. All yours for a tad over £10,000, or about 230,000 Eeks.

Heard about a beach town called Parnu on the pond-like Gulf of Riga? It's the new Miami, say estate agents with a straight face. And while it is never sweltering, with its golf courses, water parks, and miles of white sand populated by beautiful Estonian tourists, the comparison may not be as ludicrous as it sounds.

Christine Hughes, 38, from Wiltshire, spent hours researching prices in Spain and Cyprus on the internet. Yesterday she returned from her first five-day trip to Estonia, in which she snapped up her first two investments: properties in Parnu and a neighbouring town.

"You have doubts visiting any new country but going there really reassured me," she said. "You could not meet nicer people. But the beauty of the place - the landscape and the scenery - was something I had not expected. All the snow on the ground by the pine trees. It was a winter wonderland. And there was so much to do there, cross-country skiing, curling, ice fishing, hunting in the woods, snowmobiles."

While she plans to use one of her Estonian homes for her own holidays, they were not, she said, an emotional purchase. "It's an investment. Estonia ticks all the boxes. Property is still affordable and it is such a new market there is still room for capital growth."

Agents specialising in foreign sales agree. Churchill Properties Overseas operates in 33 countries. It recorded a price growth of 36% on its Estonian properties last year. "At the moment it is very much Estonia all the way and we don't foresee that changing," said client adviser Naren Cox. "Obviously countries go in and out of fashion, but the tiger economies of Estonia, Latvia, Lithuania and Poland are the driving force, even to be compared with China and India."

Why is property booming more than anywhere else in eastern Europe? Investors say buying is easy. There are no restrictions on foreign ownership. Once you have purchased the property you own it outright, unlike in other eastern bloc countries. Banks offer 40-year loans at 3.5% or less (tax relief for Estonian-based buyers takes it even lower). There is no tax on capital gains. The country has a good anti-corruption record.

Rosy outlook

The macroeconomic outlook is also rosy. GDP growth was 9.1% last year and is predicted to be 6.8% in 2006. Entry to the EU in 2004 has triggered investment. If inflation can be held down, Estonia will abandon its currency and join the eurozone in 2007-08.

Although some local people are joining in - buying flats in former Soviet garrison towns - many Estonians are ambivalent about the boom. House prices tripled between 2000 and 2004 but salaries only doubled. Minimum wages are still as low as 23 Eek, or £1 an hour; the average annual male salary is 120,000 eek. When Kairi Kurm, 29, a sales executive for a print firm, went overseas to study in January last year she could have bought a flat for 500,000 eek. When she returned in September, the price had doubled. Now she can only afford to buy a flat if her mother sells their family home and helps her out. "I think the British people are to blame for the rise in prices," she said. "Estonia's economic advantage used to be in transport and timber. Now it is cheap property. What do I get from that?"

Early investors are pocketing big profits. Two years ago, Lee Williams spent 23,000 Eek on his first Estonian property which he has sold for 12 times as much. He moved his family to the Baltic country after a friend sent him photos of rural houses for sale and he displayed them in his Brighton estate agency. His customers were soon falling over themselves to buy cheap houses.

The biggest money is made buying plots of silver birch and pine - more than half the country is forest - and obtaining planning permission before selling them on. One British investor spent 370,000 Eek on land, got planning permission and sold it for 2.5m Eek, all in three months. Mr Williams said he believed the race to develop the country was "ecologically balanced". "If you knock down a tree the government makes sure another is planted," he said.

But some expats are not convinced. John McGregor runs five bars in Tallinn and bought an apartment five years ago for 250,000 Eek. It is now worth 1.8m Eek. "I'm not clapping my hands with joy. It makes no sense. It's a bubble. I don't think it's clever to be investing in the property market. It's Estonia for God's sake."