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Andorra’s property market continues to struggle, after being adversely impacted by the global financial and economic crisis. Demand waned. Property prices dropped. Construction activity declined sharply. However, Andorra's luxury housing market was more resilient, with prices holding steady, according to local real estate experts.

Andorra saw a great housing boom during the early-2000s, led by demand from foreign homebuyers. Andorra is very attractive to expatriates because it is a tax haven with no income and inheritance taxes, and no capital gains tax on property held for more than 12 years. In addition, Andorra is less expensive than its rival Monaco. Andorra is also one of the region's most popular ski destinations.

According to local property experts:

  • In 2005, property prices in Andorra rose by 19%.
  • In 2006, property prices soared again by about 16%.
  • In 2007, Andorra saw more double-digit property price rises.
  • Then in 2008, Andorran property prices started to decline, mainly due to the global crisis. “House prices have dropped 20 to 25 per cent across the board since then,” says Christian Muñoz of the local real estate agency Roc Propietats. “Some apartments have fallen in value by a bit more, but overall price drops have not been as sharp as in Spain.”
  • The property market has remained depresssed since then.

Local property prices vary widely. At the low-end, the average property price stood at about €2,500 per square meter (sq. m.). At the luxury-end, property prices can go as high as €15,000 per sq. m.

In the country’s ski resorts of Soldeu, La Massana and Ordino, property prices start at about €165,000 for a two-bedroom apartment to around €1 million to €3.5 million for luxury chalets or apartments of four to five bedrooms.

Andorra La Vella, the country’s capital, the main shopping centre and home to about a third of the country’s population, offers new houses and apartments. On the other hand, Canillo, one of the other major towns situated between mountains, also offers new apartments near some ski resorts. In the smaller communities of Ordino and La Massana, a popular center for hiking and mountain biking, detached houses usually called chalets, are commonly found.

Construction activity remains down. In 2012, there were just 5 residential construction permits in Andorra, the lowest level since 2000, based on figures from the Departament d'Estadística. During the construction boom of 2004, the total number of residential construction permits was 121.

To boost the housing market, the General Council, Andorra’s government, is now attracting wealthy individuals such as professional athletes and business people by means of passing new residency rules in 2012 and offering incentives.

Previously, foreigners could gain passive resident status in Andorra by residing in the country for at least 183 days per year. Moreover to receive tax status, foreigners were required to make a minimum investment of €400,00 in property, government bonds and/or company shares. Under the new rules, foreigners need only spend just 90 days per year in Andorra to qualify for residency. Moreover, foreigners now have the same property ownership rights as citizens.

The government introduced three new categories of residency permits:

  1. First category – a person who is retired or at least not working in Andorra can obtain a residency permit by making a financial investment in the country of at least €400,000.
  2. Second category – a foreigner can also obtain a professional permit, which applies to business owners who live in Andorra but operate businesses elsewhere.
  3. Third category – this is for international sports and science professionals and celebrities from the performing arts.

Andorra’s residential rental market is heavily pro-tenant. Currently, the average monthly rent for one-bedroom apartments ranged from €350 to €500; for two-bedroom apartments, €500 - €800 per month; for three-bedroom apartments, €650 - €1,300 per month; and for chalet or terrace house, €1,500 - €4,000 per month.

In June 2013, Andorra announced that in 2016 it would collect its first income tax, thus succumbing to pressure from the Organisation for Economic Cooperation and Development (OECD). The new tax law applies to both Andorrans and passive residents. The first €24,000 of income is tax free, with the next €16,000 taxed at 5%. Any additional income exceeding the initial €40,000 is taxed at 10%.

Andorra's property market is expected to improve in the medium term, fuelled by the relaxation of residency rules and the construction of the new Pyrenees airport and a new heliport in the capital, with a service to Barcelona.

This article was republished with permission from Global Property Guide.