Monaco is creating new land

When asked to name the most expensive places in the world to buy property, Monaco would probably be a mandatory guess for most people. The city-state on the French Riviera is something of an anomaly which shouldn’t really exist by any rational rules – and yet it does.

A report from Savills in 2017 highlights quite how silly the housing market has become in Monaco. The average sold price was €4.5m, making the average price per square metre €41,400 – three times as high as New York. Where prices in other prime residential addresses adjust based on general market forces, Monaco’s seem not to. Indeed, the only thing that seems to be able to halt the upward trajectory is if a new tax or residency law is passed which briefly sets things back. Average annual growth has been more than 10% a year since 2006 and €2.7bn of property was transacted in 2016.

Of course, this housing market creates problems. The most obvious is that people actually from Monaco are essentially shut out of buying, or even renting, in the place of their birth. The problem is so severe that the governing council has made affordable housing for its young people a top priority – quite the move for an executive body which has for years prioritised attracting foreign money over pretty much everything else.

But why is everything so expensive? It all comes down to space. The entire place covers an area of just over 2 sqkm – a ludicrously small space to fit a population of almost 40,000 into. When your country is in the same league as Macau, Hong Kong, Singapore and the Gaza Strip you are living in a crowded place.

Space is at a premium, and when there is not enough space for the locals it is tough to overstate how unhelpful it is to have a steady stream of super-rich foreign nationals buying up property thanks to the scandalously loose tax laws in place.

Given that Monaco is surrounded by mountains on one side and the sea on three others, a solution does not spring to mind. However, one enterprising development might provide an answer.

Le Portier, due for completion in 2025, is a pioneering development which will house 1,000 people and will be built on land reclaimed from the sea. This €2.1bn project is expected to be worth approximately €3.5bn when all the units are sold and completed, meaning that this might be an avenue where developers can make a tidy profit.

There has been local objection to this in two forms. The first is from the super-rich who currently live on the Avenue Princess Grace, a place claimed to be the priciest and most exclusive street in the world by local estate agents. These residents are, perhaps understandably, not best pleased that their closed off little paradise is overshadowed by a construction site and will soon enough have another 1,000 people living next to it. On the other hand, it is hard to feel particularly sorry for these people when you consider that this is at best a minor inconvenience in a life otherwise defined by extreme luxury.

The other objection comes from local people who are concerned that the dredging of the seabed required for the Le Portier development will do nothing except disrupt and damage the fragile biodiversity of the Riviera. It would be a shame to say the least if such a beautiful area was to be destroyed in order to build yet more seemingly absurd housing. The irony is that this probably didn’t happen sooner purely because people who have paid tens of millions of Euros for their house bought the view as part of that transaction. Now it will potentially be compromised as the cycle of avarice goes on without them.

It is tough to say what will become of Monaco. As the prime Central London market discovered, there really is a limited supply of people in the world who have the finances and the desire to buy such obscenely expensive houses and apartments. The city-state has so far proven resistant to everything – including the 2008 banking crisis – but nothing lasts forever, and it is hard to escape the impression that a lot of people are going to lose a lot of money sooner rather than later.

It seems sensible to assume that copycats will appear if Le Portier turns out to be a big, money-making success, and based on that it might be time for the super-rich to look elsewhere for a haven to store their money.