Andorra is a country nestled between large mountains, so the developable area is limited to the valleys. The explosive population increase generated by the pull effect of its tax advantages and real estate speculation has forced the government of the Principality of Andorra to approve a moratorium on these investments and tax them with a special tax to control housing prices.
Andorra: stressed housing area. On December 7, the General Council of the Principality of Andorra approved a moratorium on real estate investment covered by the Bill for the suspension of foreign investment in the Principality of Andorra. This new regulation temporarily prohibits any real estate investment by foreign capital, and gives the Government the power to liquidate operations suspected of being speculative in nature.
The objective of this moratorium is to freeze real estate investments with external capital in the country until the new Foreign Investment Law is reviewed and approved during the first quarter of 2024. With this review, the Government of the principality intends to stop the proliferation of tourist accommodation and speculation that is making housing unaffordable for local residents.
Real estate investment tax. The new Bill prepared by the Andorran government will levy an additional 10% tax on the purchase of homes by foreigners, and will be complemented with a second tax that will condition the sale of that property before “a certain period”, which It could be a period of 10 years.
Part of the proceeds from these two new taxes will be used to promote the creation of public rental housing, thus helping to finance the real estate investments that the Andorran Government is making in recent months to convert it into accessible public housing for its inhabitants.
The exodus of youtubers and other investors. Andorra has always offered very lax taxation, and until 2015 it was considered a tax haven by Spain. This has made the small co-principality a very attractive place to pay less taxes. Its taxation has generated a pull effect that has attracted hundreds of YouTubers, content creators and other investors who have made their fortune in Spain and France but have chosen not to pay taxes in their countries.
This massive exodus of capital has triggered the construction of new housing and the purchase of housing already built for investment purposes. Much of that housing has become tourist rentals to obtain greater profitability in less time, but it has left the local population without room options who have been expelled far from their jobs and even to border towns in Spain.
Of the 89,294 inhabitants of the principality, only 37,960 are Andorrans. 23,787 inhabitants are Spanish, 4,751 French, 9,657 Portuguese and 13,139 of other nationalities.
House prices have skyrocketed. According to official data from the Real Estate Transaction Statistics for the 2nd quarter of 2023, the price of housing in Andorra has had sustained growth since 2018, in which the square meter of an apartment in Andorra was valued at 2,122.42 euros, up 3,473.85 euros per square meter in the 2nd quarter of 2023. Only between the 2nd quarter of 2022 and the same period in 2023, the price of housing increased by 15.5%.
Given the unstoppable increase in prices, the volume of home sales has fallen by 9.6% in the last year. Despite this drop in trading volume, the high price of real estate has left 12.8% of total profits. That is, fewer homes have been sold, but much more expensive, so the final profit obtained has been greater than in the same period of 2022.
Source: Real estate transaction statistics for the 2nd quarter of 2023