The best real estate opportunities in Venice, Italy

World-famous landmarks such as St Mark's Square, the Doge's Palace, the Grand Canal, the Bridge of Sighs…it is easy to see why Venice in Italy is one of the most enchanting cities in the world.

Easy to see also why it is one of the most desirable places in which to own real estate in Italy. One of the most expensive, too, with top-range properties routinely changing hands for the best part of US$10million in the highly sought-after area between St Mark's Square and Rialto Bridge.

The sky-high prices of real estate in Venice have seen large swathes of the local population desert the heart of the city for the outskirts; its present 60,000 population is barely a third of what it was in the 1950s and 1960s.

Many overseas property buyers have followed in their footsteps. Yet there are very affordable and profitable opportunities to be snapped up right in the heart of the city - if one knows where to look.

One such area is Castello, the largest of Venice's six districts, which lies immediately east of St Mark's Square but does not figure on most tourists' itineraries. Here, budget around US$420,000 for an 80sq m two-bedroom property. Another very affordable district is Dorsoduro, south of the city centre and just a short vaporetto boat ride away. Here, you may pay around US$350,000 for small, well-appointed flat, although you get less floor space for your money than in Castello.

Dorsoduro is vibrant and full of life. Venice's Ca' Foscari University is here and perhaps as a consequence the area boasts more late-night bars and cafes than anywhere else in Venice.

Yet Dorsoduro also radiates upmarket sophistication. The Peggy Guggenheim Museum and Accademia art gallery are here, as is the recently opened Punta della Dogana Museum, a huge contemporary art collection on the site of an old customs house dating from the 1600s.

Given the city's ever-present flooding issues, there is currently a Euro 4 billion project, due to be finished in 2011, to build a network of dams to protect Venice from the sea.

That notwithstanding, some purchasers prefer to steer clear of ground-floor apartments. If you are investing in Venice, it would be wise to obtain a full survey and ensure that the property is above the highest water level for the area.

That said, nearly 20 million tourists visit here each year, drawn by its eternal romance and by the appeal of events such as the carnival in February/March; the Biennale arts festival in summer and autumn; and the Venice Film Festival in August/September.

It means the rental yield of property is pretty impressive all year round. In high season, expect US$1,700 a week from a one-bedroom apartment; US$2,500 for a two-bedroom property; and US$8,000 and rising for the most prestigious properties.

Alternatively, there are nearly 120 isles in the archipelago surrounding the city and there are great opportunities here too.

In Burano, some 10km north-east, US$625,000 can land you a house rather than just an apartment. Nearby Torcello and Tellestrina Chioggia are also scenic. However, rental yields diminish the further away from the city centre you go.

Another option is the historic towns within the Veneto region, some three-quarters of an hour away by rail. .

Budget US$350,000 for a two-bedroom town centre apartment in either Treviso, renowned for its wine and cuisine, or Vicenza, a Unesco World Heritage Site. Padova is somewhat pricier, and expect to shell out US$550,000 for a 75-80 sq m two-bedroom property here.

Adriana Giglioli writes for Italy real estate specialists Homes and Villas Abroad, who offer 2,500 properties in Italy.