Monaco, Andorra, Luxembourg… it’s time to take a closer look at these fascinating principalities that offer prime real estate investments with exclusive tax systems.
You can ski for six months of the year in Andorra. Monaco enjoys good weather nearly all-year-round. While in Luxembourg, businesses are thriving and their high salaries attract talent from all over the world. There are distinct advantages to life in these three countries with their centuries-old coats of arms. What’s more, some have had, or continue to have, favourable tax systems, although things aren’t what they once were. These three countries have committed to practising greater financial transparency, most notably by lifting the veil on banking secrecy. Nothing would be more humiliating than appearing on the OECD’s black list while claiming to be politically stable, secure, safe havens. To have their precious “Rock” named and shamed like Bermuda and Trinidad-and-Tobago would be the stuff of nightmares for Monegasque nationals.
Monaco, More than €40,000/m²
Every year, there’s panic about the price of a square metre of floor space in Monaco. Will it exceed the price of property in Hong-Kong, its usual rival in the competition for the world’s most expensive real estate? According to the housing ombudsman (Monaco Institute of Statistics and Economic Studies), in 2016, the average resale price in the principality reached €41,400/m2 with a peak price of €100, 000/m2. At the same time, prices in Hong Kong rose to €39,000/m2, with a top price of €117,000/m2.
In this principality, measuring two-and-a-half square kilometres -- scarcely bigger than a confetti-like speck on the planet -- demand exceeds supply and keeps prices high. The flagship product is still a three-room flat which sells for between 5 and 10 million. “Apart from the occasional hiccup during the financial crisis, the Monaco market has always been promising,” observes Laurent Locchi, salesman at the agency Miells & Partners. “However, it’s become impossible to find a studio for less than €1M, and there’s a psychological barrier once you reach the €10,000/m2 mark.”
The principality has rarely experienced so much building and renovation work. So much so in fact that traffic has become a nightmare. Which is good for Fontvieille, a district near the heliport which has been somewhat neglected because of its noisy neighbourhood. Fontvieille now seems positively calm compared to its more exclusive neighbours, plagued by building works, and is very much on the up. Les Terrasses du Port, the principality’s only seafront sky scraper, boasts – amongst other properties – a 390 m2 flat on the market for 22 million, which is slightly more than €55,000/m2. Having said that, the average resale price in Fontvieille, in 2016 was 5.8 million.
Some districts are still rather shunned, for example Le Jardin Exotique, which has few shops, and Les Moneghetti, near the border. The so-called golden square of Monte-Carlo, is still very much the place to be. The recently completed Petite Afrique occupies one of the best locations in the principality, in the Jardins de la Petite Afrique, opposite the casino. The Tour Odéon, the tallest skyscraper in the principality, also completed in 2015, is similarly uniquely luxurious. Standards of luxury are comparable to those of major international cities, such as Miami and New York: vast open-plan spaces, 3,000 m2 penthouses available for 300 million, and an abundance of hotel services – all very familiar to the ultra-wealthy.
Until now, Monaco has been growing upwards, looking to the sky for those extra square metres. From now on, however, the city will expand into the sea. The eco-district, Anse du Portier, will reclaim some six hectares from the sea, land which in 2025, will be home to some of Monaco’s finest real estate.
One in three monegasques is a millionaire
Research consultants regularly publish the percentage of millionaires living in Monaco, largely based on the Forbes list. According to the British company, WealthInsight, one in three residents is probably a millionaire. With its Côte d’Azur vibe, the “rock” of Monaco attracts a wealth of banks and fund managers, lured by its tax incentives which rival those of London and Geneva. There is no income, wealth or inheritance tax and no tax payable on gifts to lineal heirs. Companies are exempt from tax if their business is based in the principality. However, these competitive advantages are reserved for Monegasque nationals and foreigners opting for tax residency status in exchange for depositing €500,000 into a Monaco bank account to demonstrate that they can support themselves financially.
The tax treaty, drawn up in 1962, states that the French cannot qualify for these tax exemptions, unless granted as a favour by the Sovereign Prince. Thus, Alain Ducasse was granted Monegasque nationality in recognition for setting up his Hôtel de Paris restaurant. Another rather complicated possibility involves changing nationality, as suggested by Harold Ollek, a partner at Bradley Hackford, a London-based firm specialising in changing tax residency. “The best thing would be to obtain Maltese nationality in exchange for a €650,000 contribution to the Maltese government, but then, on top of this, you also need to pay legal costs.” Tricky question: can a yacht moored at Port Hercule be registered as a tax address? “We’re asked this question at least once a week,” replies the Bradley Hackford employee in an amused tone. And his response is negative. The principality insists on a physical address proved by a lease agreement registered with the police.
Andorra : 90% snow, 10% tax
The Principality of Andorra, nestled in the Pyrenees between France and Spain, occupies an area four times larger than Paris but its population of 75,000 inhabitants is scarcely equivalent to that of Paris’s 2nd district. Until recently, Andorra did not charge VAT and its residents paid no tax. But these privileges have just been abolished. A VAT rate of 4.5% and a sliding scale of income tax, between 0 and 10%, have been introduced. To benefit from this tax system, which is still very low, you need to be Andorran or a tax resident, which means spending at least 90 days a year in the principality and investing or depositing €350,000 in a local bank account plus a recoverable deposit of €50,000.
Paradoxically, this particular arrangement doesn’t appear to have had an adverse effect on real estate. “We have moved from tax haven status to a tax paying country,” acknowledges Narcis Socias, CEO of Andorra Sotheby’s International Realty, with a certain satisfaction. “This enhanced visibility has had a positive effect on investor confidence and we are seeing a qualitative change in both purchasers and properties.” In this mountainous country, demand has long focused on small flats for border-dwellers, coming to enjoy a weekend on the slopes. But with the arrival of more wealthy, and therefore more demanding, clients, the market has picked up and is shifting towards high-end, or even luxury, properties.
The best “spots” are villages at the foot of ski slopes or quiet, residential districts, around 20 minutes away. Soldeu and El Tarter, near Grandvila, the largest ski area in the Pyrenees, are both highly rated, as is ¬Ordino, renowned for its rather Swiss feel. Prices are quite reasonable for such beautiful mountain properties, such as this 100 m2 flat, near the slopes, available for €340,000, or this 220 m2 split-level penthouse with large terrace, on the market for €1M. €500,000 or more will buy you a really high-end flat. However, it’s worth noting that “prime” chalets, which are mostly large granite houses, go for 2 or 3 million upwards. “Andorran real estate is attractive but you need to take time to find what you are looking for as there are very few homes on the market,” concludes Harold Ollek, stressing the appeal of buy-to-let investments given the scarcity of property available.
Luxembourg : the melting pot
The Royal-Hamilius is currently under construction right in the centre of Luxembourg, and is set to be one of the finest addresses in the capital. The architecture has been designed by Foster + Partners. All the flats will overlook the Hôtel des Postes, an early 20th century building, renovated for the occasion. Next to the buildings will be a pedestrianised square with shops and lush greenery. “Luxembourg has been waiting and hoping for something like this for a long time. You only encounter this kind of project once every fifty years!” states Fernand Hornung, from Unicorn agency. “In the capital, everyone wants to live right in the centre but there are fewer than 450 flats. The moment a property comes onto the market, it’s sold.” These brand new flats sell like hot cakes. Within eight weeks of the new development being launched, 30% of the flats had been reserved by buyers from a dozen different countries. Also in the centre, on the Kirchberg plateau, close to the EU institutions, the Infinity Tower, has experienced brisk sales. There is now limited availability although there are still a few “cosy” flats left. This district has certainly come of age but, oddly, given that it is some forty years old, it is still described as “new.” In January, le ¬Glacis, a gem of a property, comprising an old, renovated house with four flats, will soon be put on the market with Unicorn. It is located in the exclusive Limpertsberg area, a popular, central district, much loved by Luxembourg residents, with excellent public transport and facilities.
In general, prices at the upper end of the “Grand Duchy” property market, range between €6,000 and €9,000/m2. Prices for Royal-¬Hamilius apartments, are setting new records at €11,000 and €15,000/m2 excluding VAT, and even more for luxury models. “However, the market is still quite diverse,” explains Unicorn’s director. “Half of our turnover comes from house sales, in the €400-500,000 price band.” Something that is confirmed by Yves Schweitzer, from Atlantis agency: “The majority of requests we receive are for two to three bedroom properties in the €400,000-700,000 price range.” In fact, the market is split between the capital, where properties are in chronically short supply and immediately snapped up, and properties on the outskirts, priced at between €4,500 to €5,000/m2, which take longer to sell. “Prices are constantly on the up, even twenty kilometres from the centre. It gives the purchaser peace of mind to see the value of his property increase by 4 to 5% each year,” observes Yves Schweitzer.
The pressure on prices can be explained by the continuous waves of new arrivals. Luxembourg is a melting pot of nationalities. Half the population are foreigners, as are three quarters of all residents living in the capital. To support these new recruits and help them settle in, Atlantis has gone as far as setting up a relocation service, which acts as a concierge service, finding flats, good schools, getting the car through customs etc.
“It’s a niche market but very promising. With Brexit, we’re anticipating the arrival of many more senior executives from London,” predicts Charles Van Haute, who manages these relocations. Before moving to Luxembourg, you need to be aware that the tax system is nothing like as attractive as you might imagine. Luxembourg is no Andorra, or Liechtenstein and certainly nothing like Monaco. Income tax is deducted at source, at a marginal rate of 42%, which is one of the highest in Europe. In contrast, multinationals have well and truly -- and quite legally -- benefited from a number of tax advantages, discretely negotiated with the authorities, just like Ireland. Tax optimisation will certainly be less secretive in the future but better regulated, as a result.