Follow Portugal's Douro river past the terraced vineyards of the valley into the cobbled backstreets of Porto's historic wine lodge neighbourhood, Vila Nova de Gaia, and you will understand the region's source of fame and wealth. Port production is a centuries-old tradition and the great families of the trade - such as the Symingtons and the Taylors - have dominated this part of the country for generations.

But wine is only one aspect of Porto and the Douro valley. And now, thanks in part to transport and infrastructure improvements, the area has begun to welcome a new breed of holidaymakers and homebuyers, offering a more relaxed, rural alternative to the Algarve.

"This used to be a sleepy city, but the historic part, the Ribeira, has been transformed in the last few years with a lot of investment," says Paul Symington, the fourth generation of Symingtons to run the eponymous port company. "It now has a vibrant nightlife, good hotels and a lively cultural scene [and] it's becoming a good place to come for weekends."

The city's airport was recently overhauled and now offers direct flights to the UK, US and Brazil. Its new metro system was one of the most expensive public construction projects in Europe. Roads to outlying areas have been improved. Two more bridges across the Douro are in the planning stages. And the current commute from Lisbon - a five-hour drive - will eventually be cut to 90 minutes thanks to a new fast rail link.

Symington divides his time between a traditional pink farmhouse in Valadares, 4km south of the city, and Quinta das Netas, a nine-bedroom house in 43 acres of olive groves, wild scrub, pine woods and vineyards in the Douro valley. "This is isn't a place where you will bump into a Renaissance cathedral down the road or a big Carrefour just off the motorway. But it is one of the last beautiful unspoilt regions of Europe, reminiscent of Tuscany or the Languedoc and with mountains higher than [Scotland's] Ben Nevis. I think it's more beautiful," he says.

Increasing numbers of newcomers agree. In Porto's Ribeira, a Unesco World Heritage site, apartments typically sell to "young singles", especially those in the creative industries, says Miguel Abreu of the Quintas de Obidos resort, which is located between the city and Lisbon. Prices range from ?1,500-?3,000 per sq metre or more for water views. Many are in need of renovation but "a fast-track system is in place for projects in the old town, with planning permission becoming available in just four months where it would usually take up to a year and a half," says Jose Maria Magalhaes at CB Richard Ellis Porto.

He is currently offering Duque de Loule, an old four-storey building in the town centre, for ?190,000. "Sometimes you can find properties like this owned by more than 20 people - brothers, sisters, uncles, cousins - which makes it very difficult to agree amongst themselves so the best solution is to put it on the market," he says.

Overall, "prices in the city have maintained a steady level over the past two years," he adds, "but large-scale refurbishment will provide a number of luxury flats and houses and is likely to boost the market."

Changes in the port industry have also opened up some prime river-front property across the water from the Ribeira in the industrial Gaia area. The old, high-walled wine lodges have been vacated as producers move their cask-aging facilities nearer to the vineyards in the valley and so are now obvious redevelopment candidates. The port house Taylor Fladgate has taken the first leap - partnering with developer Squarestone to convert 15 acres of its redundant buildings into apartments starting at around ?400,000, along with a five-star hotel and spa.

"Porto is now becoming a place where people want a weekend retreat and being on the south side of the river overlooking the old town offers far better value for money than being in the city itself," says Adrian Bridge, Taylor Fladgate's managing director. "We think the majority of properties will be permanent homes for local people, though there is growing interest in second homes to rent out. At the moment, no one wants to live on this side because it is very much a working area that lacks the facilities. But that will change dramatically in the coming year, once there are shops and hotels."

Squarestone is also converting an old riverside distillery into 45 apartments starting at ?200,000, while its Rei Ramiro Terraces development consists of four- and five-bedroom apartments and villas starting at ?700,000.

"When I first visited Porto in 2000, it was a dusty old city of fantastic but falling down buildings and I asked people why no one was buying them. The answer was because you couldn't get there easily and you couldn't park anywhere," says Squarestone's Robert Sloss. "Now there is the new metro, an amazing and totally under-utilised airport and brand new motorways that get you from the airport to downtown in 15 minutes.There is still a long way to go . . . but change is happening more quickly."