Located on the French Riviera, the principality of Monaco is a sovereign city-state which is for many the epitome of a lavish lifestyle where money is no problem. When it comes to the Monaco property market this is often shrouded in mystery and the Monaco lending market often viewed as complex and secretive. This is an area of the world where everything is negotiable, from interest rates to charges, from loan structures to assets under management. We have an office in the heart of Monaco’s banking and financial sector and a deep-seated knowledge of how the mortgage market operates.
The Monaco mortgage market
As well as knowledge of how the Monaco mortgage market works, there are further considerations such as etiquette, language and the principles applied to mortgage applications and mortgage finance. Enness has been operating in this market for a number of years and during that time we have built up a network of close relationships with various traditional banks, private banks and niche lenders. Due to the often complex financial arrangements of property investors in Monaco it is safe to say that the vast majority of mortgage deals are of a bespoke nature. This ensures that the structure of funding, repayment terms, interest rates and charges are moulded around an individual customer’s personal situation.
We will now take a look at various aspects of the Monaco mortgage market which you need to consider when negotiating finance.
Applying for residency
Those who apply for residency in Monaco will be well aware of the requirement to deposit an absolute minimum €500,000 in a Monegasque bank. In many ways this is the basis from which all future financial transactions will be considered. In effect this is collateral held in the event of any financial issues further down the line and an added element of security for property finance transactions.
Competition amongst lenders
Even the quickest of glimpses at the Monaco mortgage market will highlight the intense competition amongst both local finance companies and those operating in multiple jurisdictions. This is all based upon the fact that Monaco property has historically held its value extremely well. As we will cover in more detail, demand for prime Monaco property is extremely high and very few properties put up for sale will actually make it to the open market before being snapped up.
The vast majority of individuals acquiring property in Monaco boast huge wealth and in many cases mortgage funding is simply a means of accommodating short to medium term cash flow. As a consequence, the level of security available via worldwide assets is far greater than traditional luxury property markets.
In common with the Paris mortgage market, as one example, the majority of Monaco property purchases will include “clause suspensives” which effectively protect the buyer in the event of issues/delays obtaining mortgage funding. These clauses can in certain circumstances delay the completion of a property sale although many are often challenged in the courts. As a consequence, it is sensible to arrange mortgage finance in principle before you begin looking for that dream Monaco property. This ensures that when you are ready to make an offer you can do so in the knowledge that the finance is at least available in principle. The importance of pre-agreed mortgage finance will only become clear once you begin your search for a Monaco property that fulfils your needs. They are often few and far between and you will need to act very quickly!
Assets under management
While the cost of prime Monaco property is often counted in the tens of millions of euros, the majority of investors will have other assets and investments. As a consequence, private banks and niche lenders are extremely keen to incorporate assets under management (AUM) arrangements into any mortgage funding transactions. This not only gives them a degree of security in the event of financial issues further down the line but also the opportunity to grow and expand a new client relationship.
Due to the intense competition in the marketplace, there are numerous situations where AUM arrangements may not be required. However, some financiers may instead insist on 12 months mortgage interest held back as a type of insurance policy.
Hybrid financing instruments
When you bear in mind the level of investment required to purchase prime Monaco property, it is no surprise to learn there is an array of hybrid financing instruments available. These include fixed rates, variable rates, trackers, capped rates as well as part interest and part capital/interest and mixtures of all of the above. The key to the Monaco mortgage market is the flexibility available especially where customers are asset rich but struggle with short-term cash flow.
In reality, loan to value (LTV) ratios are never set in stone due to the often unique circumstances of individual clients. For example:-
• On properties valued up to €5 million it is possible to arrange an LTV of 85% with no AUM arrangement.
• For those willing to pledge €1 million to an AUM arrangement it is possible to fully fund property acquisitions up to €5 million.
• Mortgage financing in excess of €5 million tends to attract AUM arrangements (but not always) of between 20% and 50% of the loan value.
Even these guidelines are only indicative especially where the carrot of an AUM arrangement and expanded relationship going forward catches the eye of private banks and niche lenders.
Unlike many mortgage markets, it is possible to fix a mortgage interest rate for the full term. We also regularly see capital and interest repayment mortgages in Monaco exceeding 20 years in length. On the flipside of the coin, an interest only mortgage, refinancing and equity release will tend to attract a term of between five years and seven years. It will also come as no surprise to learn that the Monaco lending market facilitates all major currencies and many more!
Real mortgage rates
To give you an example of how the Monaco mortgage market operates, when looking at mortgages in excess of €1 million you could expect the following terms:-
Private Banking Option
Product: Residential – interest only
LTV: Up to 100%
AUM arrangement: 20% AUM requirement for 100% loan
Rate: Five year fixed at 1.2%, 10 year fixed at 1.5%
Term: Five years with option to renew
Property Development Option
Product: Marchand de Biens
LTV: 80% of project costs
AUM arrangement: N/A
Rate: EURIBOR +2% (with a minimum rate)
Term: 2 to 3 years
Monaco property market
Even though Monaco is a principality, it is considered by many as part of the Cote d’Azur region of France which is the leading ultra-prime property market in the world today. This is an area which incorporates the Monte Carlo district with an array of casinos and luxury hotels. We also have the F1 Grand Prix zooming through the streets of Monaco which allows the region to promote the glitz and glamour for which it is famous. However, what else do we know about the Monaco property market?
Highest density of millionaires
Those who follow Monaco will be well aware that the principality has the highest density of millionaires of any country in the world. As a consequence, demand for property in central Monaco has by far and away outstripped supply for many years. This is one of the main reasons why property prices in the Monaco ultra-prime property market tend to hold their value. There are multiple potential buyers for each property for sale!
While Monaco is often seen as something of a tax haven, strictly speaking, when looking at the wider picture, this may be a common misconception. True, residents have not paid personal income tax since 1870 and this is unlikely to change for the foreseeable future. However, all goods and services attract a near 20% VAT rate and corporations face taxes of up to 33% unless able to prove three quarters of company turnover was generated within the principality.
There is a degree of privacy afforded to residents of Monaco in relation to property transactions, ownership and company finances, but this is not extended to overseas bodies registered in Monaco. Yes, there are tax benefits to living in Monaco but the idea that it is somehow an offshore tax haven is well short of the mark.
A report back in 2017 highlighted the cost of prime real estate in Monaco and placed the principality top of the tree. An investment of $1 million in prime Monaco property would buy you the princely floor space of 16 m². Compare this to London at 39 m², Paris at 46 m² and even Hong Kong at 22 m² and this perfectly illustrates the cost of property in the region. It is difficult to appreciate the comparable cost of property in Monaco when looking at other ultra-prime property markets around the world.
Just recently there have been reports of elder residents of Monaco acquiring property assets in other areas of France and London. It is fair to say that the region is currently in the midst of a major building phase and this has to a certain degree caused traffic congestion and resentment among some residents. When you consider that this next phase involves the reclamation of land from the sea, and the creation of a whole new district, perhaps short-term pain to accommodate long-term gain is a price worth paying?
Monaco’s latest land extension project
Back in 2013 there was a movement to build a new district of Monaco on land reclaimed from the sea. This brought to life the eco-district of Anse du Portier which prompts thoughts of the famous Dubai Palm Tree development reclamation. We know that the new district will be:-
• Protected by a newly installed 500 m long belt of caissons.
• These caissons weigh 10,000 tonnes stand-alone and 20,000 tonnes once ballasted in their final position.
• Created using 750,000 tonnes of sand shipped from Marseille and Piombino in Italy.
• Designed to attract fauna, plant life, algae and marine animals around the reclaimed land.
While many doubted that the Palm Tree development in Dubai would be possible, the huge investment in the project is now starting to pay dividends. It is safe to say that the reclamation project in Monaco will create another ultra-prime property district and prompt the next wave of Monaco property investors.
Property trends in Monaco
As we touched on above, it is extremely difficult to acquire property in Monaco and very much a waiting game for long-term investors. This has created very strong markets for long-term private rentals and seasonal summer rentals. These arrangements will obviously attract recreational travellers but also those who are looking to acquire property in Monaco but have yet to identify a suitable target. As well as arranging mortgage finance in principle, ahead of a potentially quick purchase, it does pay to be in the region when you finally get the opportunity to acquire that dream property.
According to Savills, there were 523 homes sold in Monaco during 2018 which was a 15% increase on the previous year and a 25% increase on the figure 5 years previous. Indeed, Monaco house prices have increased by 18% in the last year and a staggering 54% over the past five years. Monaco has the lifestyle, the facilities, services as well as the connections to Europe and beyond. What is not to like about Monaco?
The Monaco ultra-prime property market is literally in a league of its own and the local mortgage market operates on very different criteria to traditional lenders. The vast majority of mortgage arrangements are built around a bespoke structure which will mirror the current and future financial outlook for investors. While many residents of Monaco are extremely rich in assets they are not always as rich in short-term cash flow. As a consequence, the fact that Monaco mortgage providers tend to take a wider view of not only income but also worldwide assets is vital. So, now that we have considered the Monaco property market and the mortgage sector, what about life in this exclusive principality?
Well, you can experience the bright lights of the Monte Carlo Casino to the breakneck speed of the famous F1 Grand Prix street race. The lifestyle is amazing, facilities second to none and the service in restaurants and hotels is exemplary. Many would suggest that the new land reclamation project is long overdue even if it has created short-term inconvenience for some residents.
At what price can we expect properties in the new eco-district of Anse du Portier to go for?