In its 1950s and 1960s heyday, Grand Bahama was a fashionable island escape, a rival to Cuba for wealthy Americans and just a 25-minute hop by light aircraft from Miami. Frank Sinatra and Sammy Davis Jr were regular fixtures in the casinos on this most northerly of the Bahamas islands, jazz star Count Basie and tycoon Howard Hughes had homes there and many more celebrities lapped up the island’s tax-free temptations.

But since Bahamian independence from Britain in 1973 Grand Bahama, dubbed “the Venice of the Caribbean” because of its canal network, has lost its lustre.

Smaller neighbouring islands have found ways to keep the tourists coming: the capital, Nassau, on the island of New Providence, has its James Bond associations, thanks to a co-starring role in 2006’s Casino Royale, and glitzy towers and casinos; Bimini was Ernest Hemingway’s hangout; and Abaco is the sailing capital.

But Grand Bahama, a 96-mile-long outcrop of pine forests and undeveloped waterfront, lacks that sense of instant recognition and remains – for an exotic island on the US’s doorstep – curiously undervalued and unexploited.

“We want to develop a personality,” says Terence Roberts, a director at the Grand Bahama tourist board. “We are the US’s nearest neighbour. Ninety-five per cent of our visitors come from the US and Canada because they like the fact that we’re foreign – but not that foreign.

“We benefited from the growth of Florida’s real estate market in the 1940s and 1950s, but now there’s a slowdown in second home buying and we need to build tourism based on our heritage and our communities. We need to sharpen up the skills of our service personnel so people get a better sense of value when they visit.”

To help rebuild Grand Bahama and its new identity, international developers have moved in to transform swathes of land such as the area around Freeport, the island’s main hub, which were ravaged by hurricanes in 2004 and 2005.

Their timing, of course, is far from ideal. Just as the bulldozers arrived, bringing hope that Grand Bahama’s turnround was happening at last, the global crisis hit, leaving the island to feel the shockwaves of the US recession.

The biggest project, the Ginn Corporation’s $5bn Ginn Sur Mer – a mega-resort of 6,000 homes, an Atlantis-style hotel, new canals and the Caribbean’s biggest superyacht marina, covering the island’s entire western tip around Old Bahama Bay – is currently more a case of Ginn on ice as the original ambitious plans have been pared down due to the tough economic conditions.

A few months ago Ginn sales executive Spencer Mallory, who was selling homes on the 2,000-acre site from $875,000 to $1.45m, promised buyers “what we call five-star cruise ship living on land, a destination in its own right, with enough to do that you don’t have to go anywhere else on the island”.

Now local estate agent Marina Callegari-Allen from World Property Pages, who has small three-bedroom townhouses in the area from $335,000, is more restrained about Grand Bahama’s first super-resort. “Sales still continue at Ginn Sur Mer but there’s not much building work taking place besides the golf course. They’re going to have to aim small for now and wait till things pick up,” she says.

Forging ahead regardless and regenerating a large area of Freeport known as Bahamia is Harcourt Developments, the Dublin-based developer behind Belfast’s Titanic Quarter, Europe’s largest city-centre regeneration scheme.

Harcourt plans to renovate Xanadu Beach and the Xanadu Princess hotel, where Howard Hughes secluded himself in the top two floors during his final years. The company has also built two out of five blocks at Suffolk Court, in the heart of Bahamia, the first completely hurricane-proof properties on the island.

The 85 large, high-quality apartments near Xanadu Beach start at $299,000 for a 1,000 sq ft one-bedroom property – prices have been discounted by 25 per cent in recent months – and leases on moorings on the canal are available for $25,000 a year. The most expensive properties at Suffolk Court are three-bedroom 3,300 sq ft penthouses for $1.35m.

Harcourt’s Mike Murphy – previously a well-known TV and radio presenter in Ireland – admits that the economic conditions are a huge obstacle but he sees great potential in the island.

“Grand Bahama has always been that place that’s about to happen. Freeport, the free trade zone, is ripe for development and the new government, which came in last year, is totally pro-Grand Bahama and has vowed to bring in change,” Murphy says.

“Nassau is effectively the headquarters of the Bahamas but it is overpopulated, badly planned and the traffic jams are appalling,” he says. “Instead, the prime minister is focusing his attention on Grand Bahama, with three new members of his cabinet from the island and ambitious plans for a cruise ship port.”

Grand Bahama’s infrastructure – the result of the 1955 Hawksbill Creek agreement – puts other islands in the shade, Murphy adds. “There are first-class dual carriageways with no traffic on them and miles of canal walls in Freeport’s residential area without any properties alongside.”

Callegari-Allen agrees that although the island is “in complete turmoil economically and there’s still a lot of hurricane damage” now is a buyers’ market – and she is seeing mainly cash buyers seize investment opportunities.

“Freeport has always been lazytown, with no plans to develop it. We’ve been used to a quieter life here than Nassau. But the government knows it has to make Grand Bahama more tourist-friendly now, and Port Lucaya [a suburb of Freeport and the island’s main resort area] is where everything is happening. Ross Medical University has opened a campus here recently and there’s a new hospital opening soon, which all brings rental demand,” says Callegari-Allen, who reports US buyers seeking holiday condos near the canal with space to moor their boats and European buyers looking for properties with rental potential.

“One buyer from London has just bought a two-bedroom apartment from me in Port Lucaya for $164,000 as he knows he can rent it out for $2,000 a month – with no tax on income,” she says.

World Property Pages is selling a 600 sq ft beachfront studio in Lucaya, in a hotel with concierge and full security, for $90,000 and a resale studio apartment overlooking the golf course at Lakeview Manor Club, near the beach, is offered for $56,000.

Beachfront houses do not carry the usual Caribbean price tags either. A 2,100 sq ft two-bedroom house at the Bell Club and Marina, set on a canal inlet overlooking white sands, is on sale for $500,000. And if it’s a trophy mansion you are after, there are seven-bedroom properties for $6m through Coldwell Banker James Sarles Realty in the private beach enclaves of Spanish Main and Princess Isle.

Grand Bahama’s appeal to the US market is clear. Just 68 miles from Florida, it is an easily accessible, tax-free getaway. European buyers might take more persuasion, given the lack of direct flights, but the offer of a Bahamian passport if you invest more than $500,000 in property could be a sweetener.

Murphy is as confident of the island’s future potential as its prime minister.

“We’ve ploughed $30m into redeveloping Xanadu hotel and we’ve pledged to the government to get that off the ground as soon as the world economic situation has improved,” he says. “We’re completely committed to the island and we’re in it for the long haul. When the economy changes, Grand Bahama will be right up there.”