REAL ESTATE INVESTMENT IN MONACO IS BRIMMING WITH PROFIT POTENTIAL

by Gianluca Errico

MONACO. Investment inflows in Monaco, which had slowed down due to the unfavourable international economic situation, have now resumed given the last year positive economic momentum driven by favourable tax revenue and a dynamic employment situation. Monaco has created a stimulating environment for foreign investors, as it is shown by the simplified procedures for creating a company in the territory as well as its extremely low tax rates, which have contributed to turning the country into a tax haven in the past. In 2013, the Principality started implementing measures to increase its fiscal transparency and, in 2014, it signed the Convention on Mutual Administrative Assistance in Tax Matters to fight against tax evasion and fraud.

In July 2016, the EU and Monaco signed an agreement to improve the fight against tax evasion providing for the automatic exchange of information between Monaco and the European Union member states on the financial accounts of non-residents, starting in 2018. The information have been collected from 1st January 2017.  However, Monaco intends to maintain its own specific features regarding industrial and banking issues.

After some decline in recent years, tourism and especially the real estate sectors continue to attract the foreign investment in the country. An investor wishing to allocate funds in a low-risk asset could eventually include a Monégasque property in his or her international portfolio. We can observe that the real estate market in the Principality has increased, both for new and older properties, in value and in the number of transactions. This positive trend is due to both economic and structural factors. For instance, following an order of the Prince Albert of October 24, 2018 (n ° 7.174), the Monegasque regime of taxation of the companies will be modified as of the January 1, 2019. This new regime will be similar to the French regime, and will also gradually reduce corporate tax rates. The initial 33.33% tax rate used since 1993 will gradually increase to 25% on the following schedule: 31% from 1 January 2019; 28% from 1 January 2020; 26.5% as of January 1, 2021; 25% from January 1st, 2022. With an area of 2 km2, Monaco precedes the Vatican on the list of the smallest States in the world. Despite its compact territory, the Principality is a town-State boasting all the attractions of a modern and active city. Its exceptional location between the sea and the mountains contributes to its undeniable charm, and is also a significant challenge for architects and developers. Nevertheless, Monaco remains a great place to live. The Prince’s Government is working hard to develop the town. The long-term vision of the Princes of Monaco has enabled all of the projects shaping the urban landscape to be put into perspective.

The town is growing both above and below ground and includes hundreds of kilometres of tunnels needed for water and energy supply and wastewater treatment. The town is also fully cabled to receive digital TV networks, and telephone and Internet services. The striking thing, as one walks around the Principality, is that despite the urban density and steep gradients, the impression of space is maintained at all times. It is true that the number of parks and gardens per inhabitant is higher than most comparable towns. Managing the natural heritage is one of the pillars of the Prince’s Government’s sustainable development policy, in addition to the Climate and Energy Plan and other activities to foster a sustainable town. Such initiatives take place in compliance with international conventions, and are part of a responsible and long-term approach. The Prince’s Government and its departments are constantly striving to maintain the quality of public areas, roads, traffic control systems, street lighting, parks and gardens, pedestrian links and so on. At a price of extensive construction work,

which could be seen as an obstacle, has become the developers’ ally, through the building of tunnels to channel traffic and house a fully underground railway.

As a sustainable city, traffic is one of the main concerns of Monaco. Mobility remains therefore at the heart of the Government’s action.

For many investors — probably most, in fact — there is definitely a logical disconnect between the fundamental goal of investing and the approach of choice. The goal of investing is about as simple as it gets: come out with more money than you had going in. To achieve that simple goal, we’re taught to take an equally simple approach: buy low, sell high. And yet, despite these super-basic, two-plus-two-equals-four kind of relationships, so many end up confused. Human psychology surely plays a role in this so when it comes to picking a real estate asset, the first and most important step to take is not to take any emotional steps. In any evolving market, especially in the real estate market, it could be crucial to have reliable information and appropriate analysis. Monaco is a town-State. It is clearly unnecessary to underline the Principality’s strengths and the lack of housing leading to pressure on the real estate market. The Prince’s Government does not have the remit, except regarding certain priorities for the development of the territory, to intervene on the private real estate market. On the other hand, it is essential that Monegasque nationals and denizens can be adequately housed in the country, at conditions that are in line with their income. The Prince’s Government is thus taking affirmative action in three directions – the State sector, the intermediary sector and the rent-controlled housing of private tenure. As initiated by H.S.H. Prince Rainier III, and under constant development, the State housing sector enables Monegasques to be housed in apartments belonging to the State. The apartments are allocated according to criteria defined by Ministerial Order. Rents are fixed according to the area and the geographical location of the dwelling. National Housing Aid may also be granted to households according to their income and the level of the rent. Since 2010, Monegasque nationals housed in the State sector can also subscribe to a “housing-capitalisation contract”. Nationals can thus have access to accommodation that meets their needs. The State Property Authority has 3,334 dwellings in Monaco, allocated by State Housing Commissions, and 600 in the communes of Beausoleil and Cap d’Ail for Government officials or those employed by State-owned firms, of nationalities other than Monegasque. Although the cost of these constructions is considerable, it remains a Government priority to serve the population and provide adequate housing. Rent-controlled housing of private tenure guarantees denizens fixed levels of rent in buildings built before 1947.

The Principality of Monaco is ready to provide these facts through the Institut Monégasque de la Statistique et des Etudes Economiques. In Monaco, the real estate professionals consider that the value of Monégasque properties will not drastically decrease like in other countries. Most purchases are made without bank loan therefore an increase in interest rates would not considerably affect the market. The Principality of Monaco also offers a special fund available exclusively for some of the major banks in Monaco to invest into real-estates and new developments. Even if it is not the standard form of liquid fund, still this way the banks have additional opportunities to diversify their portfolios with Monaco based properties. The real-estate market in the Principality of Monaco has been always considered as a very specific market, which offers a number of advantages for its investors in a less than two km2 territory. The political and the economic stability plays a major part in the safety of the real estate assets, which makes the Principality of Monaco the ideal destination for property investments. To conclude, investing in Monaco can be financially rewarding as there is no income tax or capital gains tax on individuals residing in the Principality. In addition, there is no Monégasque estate duty on assets situated outside the Principality. There are advantages to both choice of living in a new development or a prime resale property. A new house is appealing because you can make it your own. Whereas an established property in a great location has its positive factors, too. You can see the value in both.

However, at a structural level the Institut Monégasque de la Statistique et des Etudes Economiques notes a qualitative shift in the type of apartments offered, particularly in the new property sector. Thus, new apartments built in the past few years are larger and more luxurious than those built previously; for an equivalent number of transactions, the value of the market is increasing much faster than the average price per square meter. These phenomena were studied in 2012 at the Real Estate Observatory by presenting the new property sector on the one hand, and resales of older apartments on the other. The analysis criteria are the number and value of the transactions, the type of property concerned and the price per square meter. The most valuable amenity to have in a home right now depends on lifestyle and what a buyer is trying to accommodate. If you have an art collection and you want to display that, wall space is a coveted amenity. Food enthusiasts will want high-end kitchens and wine cellars. Someone who boats or fishes wants a deep water dock. In terms of technology, though, the “smart” home is a growing amenity. Green homes are becoming more popular, too. So is wellness. Having a spa at home is a great amenity for some people. Also, someone wants to buy a home that feels like a sanctuary. People work hard, and they need to come home to a place where they can relax.