By Graham Rowan
When you first look at the prices of Monaco real estate you might react with a sharp intake of breath. They are so expensive!
Economics 101 tells us that this is a simple function of supply and demand. Monaco is a very small place that has become a global brand. Its combination of climate and tax regime mean that high net worth families from across the world want to buy property in the Principality.
Monaco used to be much bigger than it is today, but the ruling Grimaldi family made a deal with the French government in the 19th century that gave up 80% of their territory in return for 4 million francs and a commitment to build road and rail links between Nice and Monaco. What did they use the money for? To build the casino on which Monte Carlo’s fame and fortune have been based for over a century. Such were the profits from the casino that taxes on citizens were abolished and the world’s most famous tax haven was born.
With high and growing demand and very limited land on which to build real estate, Monaco prices have been going up for decades. In the last year for which we have full data, 2018, prices rose by 18%. So, if you owned a €10 million property in 2017, a year later you were €1.8 million richer without lifting a finger! Maybe buying in at these prices makes sense after all?
What makes Monaco property even more appealing is the availability of international mortgages tailored to the high net worth community. There’s a reason these people have become wealthy in the first place – above average business and investing skills and the ability to recognise a good deal when they see one. Why tie up all your capital in a single property if you could benefit from this level of growth using someone else’s money?
These kind of mortgages tend to work differently to those available on the High Street. They will generally be provided by private banks in Monaco, Switzerland or Luxembourg. These banks will require you to deposit cash with them – what they call Assets Under Management (AUM). At first, that might seem counter-intuitive, as we all know what terrible rates of interest are paid on bank deposits! However, once you place these funds with the bank they will often fund 100% of the property purchase.
So, instead of giving the property vendor a 30% or 40% deposit, you place the ‘deposit’ in the bank who then give you the full purchase price in the form of a mortgage. These mortgages can be obtained on an interest only basis to keep the repayments to a manageable level, and are typically over a 5 year period after which they can be renewed for a further five year period.
Even better news is the interest rate, which is currently in the 1.2% to 1.5% range. Let’s take the higher figure as an example. If you buy a €10 million property on a 1.5% interest only mortgage the repayments will be €12,500 a month or €150,000 a year. So in 2018 you would have experienced a capital gain of €1,800,000 on a Monaco property that cost you €150,000 for the year. And you get to live in a beautiful country where you can apply for residency and end up paying zero tax on your world wide income.
What’s not to like?
We’ve partnered with one of the most respected brokers in Monaco to bring you the best mortgage offers on the market. If you’d like an initial discussion on how they can help you acquire your Monaco home please fill in the form below and we’ll connect you so you can start a conversation.