Real estate market review 2017: Andorra
Real estate market review 2017: Andorra. Global real estate
Real estate of Andorra: the analysis of real estate market in 2017, legislation alterations, tendencies, agencies, prices.
“PROS” and “CONS”. The major advantage of owning real estate in Andorra by both residents and non-residents of the Principality is the absence of taxes for that. The only payments are the fees to local Comu administrations that do not surpass the annual limit of 400 euro for 500 m2 chalet. In neighbor Spain the tax for the analogue property can make up to 3000 euro annually, depending on the region.
Besides the owner of the property that costs more than 350 000 euro can apply for Andorran residence. Look for details here.
One more advantage of acquiring the property in Andorra is favorable geographical location of the Principality, its closeness to Barcelona and Toulouse as well as to Madrid, Biarritz and Cote D’Azur. In the beginning of 2015 the airport, that is located within 10 minutes driving distance from the border with Andorra (on the territory of Spain), was opened for the low cost flights to Barcelona, Madrid, Toulouse, Lisbon, Canary and Balearic Islands. The flight from Barcelona will take no more than half an hour.
Andorra is a year-round resort—ski resorts of Andorra are available for 5 months a year, thermal resorts are open all year round. Mediterranean resorts of France and Spain are located within 2-3 hours of driving distance.
The banks of Andorra are included into top-20 of the world banks from the point of view of private investments allocation. Look for details here.
Andorra is also included in the list of top 25 countries for business development. Thanks to the Law that allowed foreigners to have business in Andorra, the Principality has reinforced its positions of financial center.
Andorra is the center of European shopping. The prices for many goods here are 15-30% lower than the average European ones. Look for details here. At that, in accordance to International living index Andorra takes the 12th position in the world for its living standards.
Though Andorra is not a member of EU, Andorran residents can get their multiple entry Schengen visa processed at Spanish consulate within 20-minute term, having only the card of Andorran resident and passport. The card of Andorran resident allows living on the territory of Andorra, Spain, Portugal, France and Monaco.
No different from other European real estate, besides the capitals and big financial centers, Andorran real estate was relatively illiquid. It may take several years to sell big objects. Nevertheless, due to the fact that the Principality is becoming an affluent financial center and is attracting more and more of investors, the situation is alternating.
Residential real estate has never been profitable from the point of view of further lease. Traditionally the profitability from leasing local real estate doesn’t surpass 2-2,5%. Alongside with that, such profitability has remained stable for the whole period of crisis—i.e. from 2008.
From the point of view of investments, it is better to acquire commercial real estate that has been a deficit sector on the market for a long time. From the moment of adopting the “Law on investments” in 2012 the amount of applications for such investments has made up 1380. The preliminary data for 2015 demonstrates a serious growth of this index in comparison to 2014. All this factors presuppose a high demand for commercial real estate. Nowadays, the profitability of commercial real estate can vary from 3 to 10%, depending on its purpose—offices, premises, stores, trading areas.
The prices for trading real estate in the central Andorran streets (Meritxell and Carlemany avenues) didn’t go lower even during the crisis of 2008. In spite of high prices, it is not difficult to find spare trading areas here. The offers rarely emerge on the market and quickly find its new tenants or owners. The average cost of the rent in the central avenue makes about 100 euro per 1 m2 monthly.
Residential real estate can also be viewed from the point of view of investments. For instance, one of the best options is to find a big (from 5 bedrooms) apartment or chalet, not far from ski lifts for further leasing it on daily or weekly basis to big companies of ski amateurs. Although the ski season in Andorra lasts only 5 months, the profitability from leasing of such apartment can make up to 7-15%. In case of using additional advertising tools, the profitability may grow as far as in summer the tourism in Andorra doesn’t fade but modifies into other domains (cycling, tracking, golf, eco tourism). It is obvious that it would take far more than one day to acquire such real estate object. Its profitability will highly depend on the cost of the property, its quality and location.
It should be recalled that annually Andorra with the population of 70 000 people welcomes about 8 mln of tourists, so it is the best way to view the investments into real estate of Andorra from this dimension.
Crisis and perspectives of growth. No different from other European real estate markets, the period from 2008 to 2013 became the time of crises for Andorran real estate as well. In accordance to the Department of Statistics of Andorra, in 2013 there were issued only 30 permissions for residential area building, which is the lowest index from 2000 (2008-47, 2009-55, 2010-41, 2012-27, 2013-30). For instance, in the period of building boom of 2004 the total amount of the permissions for residential area building made up 223.
The majority of chalet and apartments were acquired by the current owners for living during ski season. But the tendency of global economic decrease entails the expenses of property owners for their mostly vacant real estate objects.
In the period from 2004 to 2008 the growth of real estate prices in Andorra made more than 60%. In 2008 the prices began to fall down because of the global economic crisis. The prices, depending on real estate objects (commercial and residential), fell down by 15-20%. The same level of decrease was fixed in France and Spain (resort areas). After the fall in 2008 the average prices got fixed and it marked the beginning of stagnancy. Though, there were no further decreases. Thus, taking into consideration that the prices have reached a certain “bottom”, it is a prime time to invest into the market of residential real estate of Andorra. Approximately in 2013 the prices began to grow.
The analysis of the existing market offers shows that the majority of the offers begin to demonstrate price falls only after 1.5-2 years. For instance, a new pent-house (300 m2) in Andorra la Vella was recently sold for 680 000 of euro instead of previously claimed 1,2 mln euro.
In 2014 Andorran economy began to demonstrate serious signs of recovery. The level of unemployment decreased by 30%, the volumes of trade enlarged, the amount of tourists multiplied (it fell down from 10 mln in 2008 to 8 mln in 2009).
Thanks to the investors, that began to launch their companies in Andorra, the growth of commercial real estate prices became especially apparent. The growth of commercial real estate popularity provoked the growth of market as well as residential real estate. Real estate price difference is quiet large in Andorra. A democratic studio-apartment of 50 m2 would cost about 50 000 euro. The rent cost of such apartment will make 300 euro monthly. Among expensive but compatible market offers, presented in the data-bases of Andorran real estate agencies, there is a chalet in La Massana parròquia: its surface is 1500 m2, its cost is 2.8 mln euro. The size of chalet allows to turn it into a private hotel, thus increasing the profitability of the object.
The expected growth of investments in 2016 will entail the growth of real estate market. In case the tendency for the registration of companies in Andorra with further obtaining of active residential status remain at the same level, and taking into consideration favourable microeconomic factors, the growth of real estate market (commercial and residential) in Andorra will make 15-20%.
Thus, given the existing prices, that have passed the “bottom” level, currently the terms for acquiring commercial and residential real estate objects are more than favourable.
Luxury real estate. Posh real estate of Andorra is mostly located in the certain districts of Escaldes and Andorra la Vella, most often these are the upper levels of buildings. In particular, these are the districts of Els Vilars and Engolasters. Beyond the borders of the capital, the buildings in La Massana area (La Massana, Ordino, Pal, Arcalis) can also be attributed to the group of luxurious; here the property is mostly acquired by wealthy immigrants from the UK and USA. The parròquia is located at the dead end highway CG3, that leads from Escaldes to the biggest national park and the highest mountain peak – Coma Pedrosa. Due to that, the ecological situation here is traditionally the most favorable in Andorra. Vallnord ski resort, located in La Massana, has got World Ski Award twice as the best Andorran resort, though it is smaller than the second Andorran resort Grandvalira, located not far from the border with France. At that Vallnord doesn’t “sleep” in summer, but becomes the biggest cycling center in the Pyrenees, that welcomes global championships in different cycling disciplines. This is also the place of location of the only paid private school in Andorra, where the children are taught by the tutors with UK University diplomas in English and Spanish. The only heliport in Andorra is also located here in La Massana, it allows to get directly to Toulouse or Barcelona by helicopter within 30 minutes.
Encamp and Canillo parroquias, located along CG2 highway, that links Spain and France via Andorra, have traditionally been the regions of service infrastructure location of the second biggest ski resort of Andorra – Grandvalira. Due to the fact that this highway leads to France and the major cities of both parroquias (Encamp, Canillo, Tarter, Soldeu, Pas de la Casa) are located relatively far away, the logistics of transfers to the capital is pretty complicated, especially during snowfalls. The major type of buildings are apartments, chalet and houses are not that popular. The real estate objects in here are acquired mostly by the citizens of France and Spain that use their property as winter apartments for ski season that lasts from December to April. In general, in summer the life here fades down.
How to buy and the taxation of deals.
In accordance to the law, adopted in 2007, the speculations at Andorran market ceased to be pertinent. A new progressive law on real estate sales now makes up 15%, in case the property was acquired no more than 12 months ago, 13%– less than 2 years ago and 10%– less than 3 years ago. Further on the tax rate falls by 1% every other year of owning the real estate object; thus after 12 years it will make 0%. Nevertheless there are certain exceptions. For instance, in case a resident of Andorra decided to sell the property in order to reinvest the money into other projects on the territory of Andorra.
All real estate objects are sold only via the real estate agencies accredited at AGIA (Association of Real Estate Agencies of Andorra). In Andorra there are about 200 registered agencies (really working about 50). This factor together with the above mentioned progressive law makes the basis for the market prices equation in general and prevents the market from speculations. The notion “prices from a developer” doesn’t exist in Andorra. It completely corresponds to the average market offer. Meanwhile, the price difference between the stage of “foundation pit” and ready objects makes 15-20%. The terms of construction in Andorra are enhanced due to the mountainous terrain in comparison to other analogue objects at other location. Due to that, the process of investment returns is also enlarged.
Buying real estate in Andorra is easy and quick. Look here for the full list of real estate agencies here.
In general, the process starts from the stage of lodgment for fixing the deal (10% of the total sum of the deal, thereby the sum of deposit is irreversible in case a buyer declines the deal) and the work of a notary officer (about 2 months). The deal closes up by signing the agreement of transferring “the title” (Escriptura Publica). When aquiring the property, the potential owner pays the fixed tax (2% of the object cost) to the local Comu as well as 2% tax t the Government (Impost de Transmissions Patrimonials). It´s 4.5% tax if a buyer is juridic person. A buyer doesn’t pay any taxes to the agency. Alongside with that, a seller pays the commission, which makes 5% of the deal sum. All the tax payments should be implemented at the banks of Andorra.
Additionally, a buyer should pay the cost of notary transaction processing and the expenses for the mortgage loan arrangements to the bank. In 2013 the banks of Andorra cut down on mortgage loans for non-residents. To get the mortgage application approved by the bank, nonresidents should present the confirmation of possessing the sum of money at their accounts that 3 times surpasses the sum of the loan. The specialists of international real estate agencies state that this measure allowed stopping the tendency of price decrease at the market.
Notary expenses are paid in accordance to the growing scale depending on the price of the deal. The notary expenses of the buyer for the real estate that costs from 70 000 euro up to 115 000 euro makes up 0,3% of the deal, for the real estate that costs from 120 000 euro up to 300 000 euro –0.2%, and higher—0.1%.
|The price of the object||Up to||The cost of notary services|
|66,122||72,111 euro||444,75 euro + 0,3% of the deal price|
|72.112||78.111 euro||462,75 euro + 0,3% of the deal price|
|78.112||84.111 euro||480,80 euro + 0,3% of the deal price|
|84.112||90.111 euro||498,85 euro + 0,3% of the deal price|
|90.112||96.111 euro||516,85 euro + 0,3% of the deal price|
|96.112||102.111 euro||534,90 euro + 0,3% of the deal price|
|102.111||108.111 euro||552,90 euro + 0,3% of the deal price|
|108.112||116.111 euro||570,95 euro + 0,3% of the deal price|
|116.112||120.111 euro||589,00 euro + 0,3% of the deal price|
|120.112||300.506 euro||607,00 euro + 0,2% of the deal price|
|300.507||601.012 euro||997,70 euro + 0,1% of the deal price|
|601.013||Higher||1.268,15 + 0,1% of the deal price|
Only 4 notary officers are working in Andorra (look for details here), the text of real estate sales or rental contracts are standardized by the Government of the country. The fixed price for signing the notary act is 180 euro. Besides, the tax, imposed on all the notary documents, makes up 5% of the service cost. The contract is signed in the presence of notary officer, he also guarantees the legitimacy of the deal, which allows to skimp on the payments to the lawyers that check the real estate object in accordance to the rules of many other EU countries. The notary officers also have got the record book of all real estate objects of the country. At the same time this record book is not public, which excludes the chance of third party access.
Previously, the only restriction for non-residents, related to acquiring real estate in Andorra was the possibility to buy only two real estate objects. Currently, in accordance to the Law on Foreign Investments from 2012 almost all restrictions, that have existed on the real estate market for 75 years, were annihilated. Foreigners as well as foreign companies obtained the right to buy real estate in Andorra without any limits.
A nonresident should obtain the permission from the Government of Andorra for buying real estate. Alongside with that, a buyer should be older than 18 and also should have all the documents: ID and an account at any bank of Andorra. In its turn, a real estate object should have all the documentary permissions from the government for sale.
Currently, the banks of Andorra provide mortgage loans in the amount of 80% of the object price for the residents of the country, and 60%– for nonresidents. The interest rate for the mortgage loan starts from 2% over Euribor rate (0.75%). At the same time, in accordance to the data of Andorran Bank Association (ABA), there has been a substantial decrease in the amount of the loans given to nonresidents within the last 2 years.
It should also be noted that automatic proprietorship inheritance between spouses is not relevant for Andorra. The cost of the notary will registration is 90 euro.
Rent market. The market of real estate rent has come through the period of revival within the last 2 years; the growth of prices has been fixed at the level of 5-15%. This revival may be attributed to the growth of the amount of applicants for getting passive and active residence due to the adoption of a new “Law on Investments” and the amount of foreign investors, willing to launch companies in Andorra.
The market of elite real estate remained livened during the whole period of crisis from 2008 and demonstrated the stability of prices. In accordance to the specialists, this can be related to the deficit of objects of this category, which gives the opportunity to view this segment from the point of view of potential investments.
Currently, no taxes are levied on any real estate rent deals for a tenant. The payments for community facilities are implemented by means of the fixed sum depositing (depending on the real estate object) with further deduction or vice versa extra payment in accordance to the results of the year.
The tenant is obliged to make a deposit in the amount of 2 monthly payments (this sum is reversal and is paid back completely after the end of agreement term or partially after the estimation of property). The cost of real estate agency services for settling a deal is the cost of 1 month of rental payment + VAT (IGI, 4.5%) and the payment for the first month of rent. Consequently, the total cost of the rental deal in Andorra is the cost of 4 months of rental payment. The contract is signed for 5-year term. In case a tenant takes a decision about early termination of contract, he should write about his decision to the landowner or the agency no later than 5 months in advance within the 1st year of rent, 4 months within the 2-nd year, 3 months within the 3rd year, 2 months within the 4th year and 1 month within the 5th year of rent.
After rental agreement, a tenant should sign a service agreement with energetic company of Andorra FEDA (electric energy will be connected to the object only after signing this agreement). Preliminary, a tenant should have the document (Butlleti Electrical) with the stamp of Andorran Government that mentions which capacity a client needs. The cost of such document varies from 50 to 150 euro (depending on the rented object). The article “Consumption rates for electric energy in Andorra” can be found here.
After signing a rental agreement, a tenant should go to corresponding local Administration (Comu), and register the abovementioned agreement. For that a landowner should give a tenant the copy of Habitability Certificate, affixed with the seal of Andorran Government. The validity term of such document is 10 years. After the end of this term, a landowner is obliged to prolong it and present to a tenant.
Tenants also must sign real estate insurance agreements (in case of fire or other terms of causing damage). This is the obligatory term of rental agreement. Such insurance may be registered at any insurance office of Andorra.
After closing the deal, the landowner gets the certificate of community facilities payments. The certificate that should also be presented to a notary officer should mention the information, regarding the absence of any utility payments debts. A landowner should also get the certificate that confirms the absence of debts at the corresponding local administration office (Comu). This document should also be presented to a notary officer.
A standard rental agreement is signed for 5 years and existing rental terms of Andorran real estate evidently favor tenants. In his turn, a landowner may determine the contract only in case the evidences of violating the terms of the contract will be presented, for instance, breaking financial commitments. But at the same time, a landowner, for instance, hasn’t got the right to sell the leased property for 5 years. Besides, in the course of 5-year term, the cost of rental payment cannot be increased by more than the rate of annual inflation.
Meanwhile, the government of Andorra mulls over the opportunity to alternate the real estate legislation of the country. In particular, the changes may touch upon the period of a rental agreement. Currently, the standard rental contract for an apartment, a chalet or commercial property is signed for 5 years, which is unfavorable for landowners that lose control over it (in particular, the opportunity to sell it at the moment of market growth) for the corresponding period. The law presupposes to diminish this term to 2 years.
At the same time, after the joint counseling between AGIA and the Government of Andorra, it has been decided to exclude from the law the item that obliges a tenant to warn a landowner about the decision to determine the contract no later than a month. This term will be stretched to 3 months. Besides, the experts of AGIA share the opinion about the necessity to liberalize the article of the law regarding housing sublease and commercial real estate.
Within the bounds of the marked real estate market growth, in particular in 2013, such alterations may become the additional incentive for buying housing or commercial real estate.
The rental prices start from 350 euro for the standard studio-type apartment up to 40 m2. The prices for three-piece apartments start from 400 euro, for four-piece apartments—from 600 euro. The prices for a chalet and homestead vary, depending on the area and the quality of repairs, from 1500 up to 4000 euro.
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