Sunday 17 December 2017

Housing boom in Monaco as influx of super rich expected

An artist's impression of the Tour Odeon penthouse and pool area
An artist's impression of the Tour Odeon penthouse and pool area

Neil Callanan

Monaco is experiencing a luxury-housing boom that includes the world's most expensive penthouse as developers prepare for an influx of millionaires and billionaires escaping higher taxes or a loss of banking privacy.

A "flow" of new residents is emigrating from Switzerland, where financial-secrecy laws are crumbling, said Jean Claude Caputo, managing director of broker Savills ' French Riviera unit. They're drawn by the principality's "security, sophistication and climate," he said -- as well as for financial reasons. The Swiss government signed an accord in May to automatically share bank data across borders.

New levies on luxury homes in London and a US-led global crackdown on hiding assets will also probably attract the affluent to Monaco, which already counts pop stars, Formula One drivers and Russian billionaires among its inhabitants. One in three of Monaco's 38,000 residents are millionaires. As that number increases, home values will rise by about a fifth by June 2015, according to London-based Savills. That would almost erase losses sustained since the market's 2007 peak.

The Tour Odeon, a double-skyscraper being built by Groupe Marzocco SAM near Monaco's Mediterranean seafront, will contain a 3,300 square-metre (35,500 square-foot) penthouse with a water slide connecting a dance floor to a circular open-air swimming pool. The apartment may sell for more than €300m when it goes on the market next year,

"What we sell is Monaco," commercial director Niccolo Marzocco said during a viewing of the skyscraper, which is costing more than €600m to build, excluding the land. He cited security, stability and the convenience of living in a city-state about two-thirds the size of New York's Central Park.

The most expensive part of Monaco, centred on the Golden Square and The Casino de Monte-Carlo made famous in James Bond films, is already the world's costliest property location ahead of Hong Kong. For $1m, you could buy about 160 sq ft of space, Knight Frank estimates.

The principality's residents don't pay taxes on income. The French have to pay taxes there, with certain exceptions dating back more than 50 years.

Monaco is home to a host of Formula One drivers such as 2008 World Champion Lewis Hamilton, who moved there from Switzerland two years ago. While Switzerland also has some of Europe's lowest tax rates, it's becoming less attractive to luxury homebuyers as the country's financial secrecy laws are eroded amid a move toward a global standard of information exchange between tax authorities.

Other jurisdictions, including Monaco, are looking for ways to tap into the wealth held in the Alpine country.

Moving to Monaco is an "obvious" strategy for many of Switzerland's super-rich residents, according to Richard Murphy, co-author of "Tax Havens: How Globalization Really Works."

The Tour Odeon will be Monaco's first high-rise since the 1980s. A quarter of the apartments sold on the open market by Groupe Marzocco have gone to expatriates from the former Soviet Union, the company said, without disclosing where they're based. A model apartment now being offered has 270 metres of internal space and 130 square metres of balconies and is valued at €28m. The lower floors were sold to Monaco's government for use by local citizens, who will enter the building through a separate entrance.

The tower's construction began during the global financial crisis. "The government was quite wise" to buy some of the apartments, Daniele Marzocco said. "It also was something at the time to push the economy because we pay a lot of value-added tax, we create employment."

Still, not all property developers are interested in building homes in Monaco.

"It's just a crazy market," Pierre Vaquier, chief executive officer of Axa Real Estate Investment Managers, said in a March interview. "You buy there not only for the environment, but also for the tax regime," said Vaquier, who said he's not interested in developing homes in the principality.

Monaco has come under pressure to increase transparency. The Paris-based Organization for Economic Cooperation and Development labelled Monaco an "uncooperative" tax haven in 2002, though it was removed from the OECD's list in 2009 after entering exchange-of-information agreements. Those targeted individuals or companies in the principality with offshore accounts, not established residents.

"Today, Monaco is more and more onshore," Daniele Marzocco said.

Switzerland in November retained the top spot in a financial-secrecy index by the Tax Justice Network. Some wealthy investors prefer jurisdictions whose legal system is based on British law, such as the British Virgin Islands, due to its predictability.

Monaco will have to further expand into the sea and build more residential skyscrapers like Tour Odeon to cater to the expected influx of wealthy buyers, according to a May report by Savills.

"People have looked at the next available place which has a similar type of secrecy environment" as Switzerland and provides a high quality of life, said Murphy. "Monaco is one place that fits that bill." (Bloomberg)

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