Residential property observatory 2020

 

As it does every year, the Monegasque Institute of Statistics and Economic Studies (IMSEE) publishes figures relating to real estate transactions, and more specifically those concerning the private residential sector and its ten-year evolution.

 

Introduction

 

Last year, more precisely by the end of February 2020, in the early stages of the health crisis linked to COVID 19 which has turned into a global pandemic, we concluded that the Monegasque residential market was still very strong, thanks to its limited properties offer and its perpetual strong  demand.

The government ever-present interventionism, as well as the attractiveness of bank interest rates also boosted the dynamism of the market. The numerous development projects undertaken also demonstrated the good health of this sector of activity.

Nevertheless, we ended on a very cautious outlook with, on the one hand: the fear of a slowdown in the world economy which would affect the volume of real estate transactions in Monaco; and on the other hand, a likely stabilisation of the prices per square meter of the Monegasque real estate, which had experienced a very significant growth over the last decade, partly linked to the explosion of speculative operations by property dealers.

Unfortunately, one year later, what was considered as a simple Chinese flu invaded our daily lives and took on an unprecedented global scale that affected all sectors of the world economy. Monaco did not escape it and real estate, despite its excellent resilience, also suffered the consequences.

 

The Monegasque residential market

 

Ten-year evolution of the number of sales and resales

 

The number of sales dropped significantly (from 33 to 16) but these are directly linked to new property developments that have been launched or delivered. However, in 2020, despite the delivery of 26 apartments, part of the properties has been retained by the developers.

The number of resales also fell to 395 transactions compared to 429 in 2019 (-7.9%). It is quite relevant to note that this decline only occurred in the second half of 2020. At the end of the first half of the year, 193 transactions were recorded, the same total registered in 2019 for the same period. This downturn began in the third quarter (-19.4% vs. 2019) and became more significant in the fourth quarter (-26.1% vs. 2019).

 

Ten-year evolution of the sales and resales amount

 

In line with the observations on the slowdown in the number of sales and resales, the volume of property transactions also dropped sharply, both in terms of sales and resales (€2,172.6 million). This represents a decrease of 22.3% compared to 2019 (€2,795.9 million) and is comparable to 2017 (€2,060.7 million).

The volume of transactions relating to resales recorded a proportional decrease (-21%) higher than the number of transactions (-7.9%), which means that the average price of resales carried out was lower than 2019.

 

A/ The property sales market

 

Delivery of new apartments in the non-regulated sector

 

Only 26 units were delivered in 2020 compared to 49 in 2019 (One Monte-Carlo and 26 Carré Or) and 89 in 2018 (Stella project). It should be noticed that the vast majority of the apartments delivered in 2020 were part of a patrimonial reasoning and were only marketed on a rental basis.

 

Ten-year evolution in sales by type of apartment

 

The amount of sales transactions also backs off, but less markedly (-32%) than the number of sales (-52%) due to the type of properties sold. Indeed, less studios and 1 bedroom apartments were sold but more 2 and 3 bedrooms apartments have been.

Total sales reached 218.7 million in 2020 against 320.5 million in 2019, or 453.7 million, which was the best year in 2015.  However, we can see that the evolution of this very exclusive market in terms of offers is in fact very volatile. It only depends on the nature of the constructions to come or delivered, the developers having no difficulty in finding buyers during the marketing phases. In particular, it is uncorrelated with the resale market, which more accurately reflects the economic reality of the Monegasque residential property sector.

 

B/ The property resales market

 

Ten-year evolution fo the. number of sales by type of apartment

 

The resales market, as well as the sales market, is decreasing (-7.9% vs. 2019) and is returning to a similar level to 2017 and 2013 with 395 transactions completed. Resales recorded on the smallest typologies (studio and 1 bedroom) even increased to 231 transactions in 2020 against 227 in 2019. On the other hand, there has been a sharp decline on the largest typologies, apart the 3 bedrooms, with 113 transactions in 2020 against 151 in 2019.

 

Ten-year evolution of the amount of resales by type of apartment

 

The amount of resales, like the number of sales, is also down but more significantly, recording a drop of more than 21% compared to 2019. This is logical because as we previously observed, market entry has held up better than the larger surface area properties which are therefore the most expensive.

 

Number of resales per year and price range

 

The number of transactions for amounts of less than €5 million remained at 285 instead of 288 in 2019. Proportionally, however, as the total number of resales fell, these transactions represented 72.2% of the total number of apartments resold in 2020 compared to 67.1% in 2019.

The price range with the biggest changes between 2019 and 2020 concerns transactions of more than €10 million. Indeed, resales went down from 60 to 37 (-38.3%). In 2020, this price range represented only 9.4% compared to 14% in 2019.

 

Ten-year evolution of average and median resale prices

 

The average price observed in 2020 fell significantly from €5.8 million in 2019 to €4.9 million in 2019. As noted previously, this is directly linked to the fact that transactions have been proportionally more focused on smaller apartments than previous years. Nevertheless, we remain above the level recorded in 2017.

The median price also fell from €3.5 million in 2019 to €3.1 million in 2020. However, it has resisted better than the average price, which has certainly been significantly influenced by some very high transactions, particularly in 2019, which did not recur in the same proportions in 2020.

 

Ten-year evolution of the price per square meter by type of apartment

 

The evolution of the price per square meter is certainly the most expected indicator for observers. Generally speaking, in 2020, the price per square meter has shown a strong resilience, with a fall of only 1.1% on average.

Besides the unique context of this year, we are observing a trend since 2018, with the stabilization of the price per square meter, compared to the evolution that was observed between 2013 and 2018.

It is interesting to note that since 2014, we are in a two-year cycle regarding the evolution of therices. Prices are steady for 2 years before starting to rise again in the third year. This is certainly what would have happened in 2020 as well.

From one typology to another, 1 bedroom are the ones that have been the most appreciated between 2019 and 2020, going from €42,972 to €45,534 (+6%) contrary to the studios for which the price per square meter has fallen by 3.1% since 2019.

 

Number of property resales per district

 

Monte-Carlo is the district with the highest number of resales in 2020 with 136, even increasing by 14.3% compared to 2019, while all other districts are in decline with the exception of the Jardin Exotique and the Larvotto. This can certainly be explained by the fact that Monte Carlo is the most attractive district for investors, as it is considered to be the safe bet on the Monegasque property market due to its central geographical position. Thus, in tumultuous times such as those experienced in 2020, buyers are looking for security in their investments.

In absolute terms, it is logical to see that Monte Carlo and La Rousse represent 60.8% of the total number of resales, as they have 43% of the built surface area dedicated to housing and only a few state-owned housing units reserved for Monegasques (which are excluded from the real estate observatory because they are state-owned and non-transferable) are present in these districts.

 

Ten-year evolution of the price per square meter per district

 

The price per square meter of the Larvotto is very random as it relates to a very low number of transactions (7 resales), just like Monaco-Ville (6 resales). We will therefore exclude them from the following analysis.

In 2020, we observe the gap in terms of prices between the different districts is tightened. Indeed the Jardin Exotique, which was the least expensive area, recorded a 6% increase value rising from € 35,383 in 2019 to € 37,500 in 2020. Conversely, the Monte-Carlo district, which was the most expensive in term of prices per square meter, recorded a 2.7% drop between 2019 and 2020, to reach an average price of € 51,617.

Consequently, Fontvieille district is from now on the most expensive district per square meter ! 

Thus, between the two extremes, we observe a difference which is no more than € 14,372 in 2020 against € 17,659 in 2019. The standard deviation of the price per square meter per district drops in 2020 to reach € 6,449. against € 7,070 in 2019.

The price drop of Monte Carlo can also be explained by the fact that in 2019, the 26 Carré Or luxury building was delivered and pulled prices upwards, just as the Condamine did with the Stella, that induced a very significant increase in the price per square meter when it was delivered in 2018.

 

Ten-year evolution of the average price per square meter of a resale property

 

As mentioned above, this graph clearly shows that the average price per square meter has been much more resilient than the volume of resale transactions.

Assuming that the supply remained more or less the same between 2019 and 2020, it can be deducted that the demand represented by potential buyers became scarcer in 2020. At the same time, as sellers are generally not in hurry to sell their properties in the Principality, due to a lack of immediate cash needs, they have maintained their price requirements.

 

Conclusion

 

The past Year

As we look back upon the past year, the least that can be said is that it was an unprecedented year. It could easily be analysed in two phases:

  • a first one, covering the period from January to August, where figures recorded in terms of numbers and volumes of transactions were in all points similar to the year 2019, which was excellent.
  • a second period, from September to December, where the property market experienced a gradual slowdown with a 19.4% decline in the third quarter and 26.1% in the fourth quarter in the number of resales completed.

One explanation for these observations could be that there is a time difference between clients' decision formalized by a buying offer or a preliminary sale agreement, and the signature of the property deed, which usually occurs 2 to 3 months later and means the completion of transaction. Thus, the beginning of the crisis having occurred in March 2020, the results up to May were only the continuity of the transactions undertaken until then.

During the months of March and April, the first and most severe lockdown occurred, which strongly disrupted the real estate market, especially with a restrictive access to the properties.

At the end of the lockdown, the safe investment represented by the real estate in the Principality recorded positive performances, mostly through local buyers who wanted to complete or diversify their assets. Acquisitions were essentially studios or 1-Bedroom properties intended for the rental market.

From September onwards, residents’ demand ran out and has not been replaced by new comers. The long-awaited relaxation of pandemic-related measures did not happen and began to weigh on investor morale.

Also, properties above a certain surface area with luxury standards, mainly intended for foreign customers for their personal needs, have been more affected by the global context.

As a result, the decline in the euro volume generated by transactions was more significant than the  one observed concerning the number of units sold compared to 2019.

Despite the decline in transaction volumes, prices showed a surprising resilience as they stabilised. Indeed, homeowners who decide to sell are rarely in urgent need of cash and prefer to wait a bit longer rather than lowering their expectations

Even though no observatory regarding "the rents" is published, professionals have also reported a drop of 10 to 15% in  prices charged and longer re-renting periods than in previous years. The rental yield, which was already quite low in the Principality (between 1.5% and 2%), has also continued to fall as selling prices have remained stable.

Nevertheless, yield has never been a decisive argument, most investors rely on the appreciation of their assets over the years. On this point, Monaco has no competition over the last 10 years, as well as on taxation, especially in the case of inheritance or capital gains.

Finally, if we exclude the Larvotto district, where it is difficult to draw conclusions regarding the low number of transactions recorded  each year, Monte-Carlo, for the first time, is no longer the most expensive district! Indeed, this is a small revolution, but Fontvieille district has replaced it, perhaps thanks to its relative tranquility compared to other areas in the Principality.

 

This year and beyond

The beginning of 2021 unfortunately remains in line with the overall slowdown observed in the second half of 2020. The residential sales activity should not regain its momentum as long as there is no visibility on the end of the crisis linked to COVID-19.

For obvious logistical reasons too, the Principality's very cosmopolitan clientele has been directly affected by restrictions implemented for international movements. Some residents did not set foot in the Principality for more than a year when other prospects who are thinking of relocating there, are currently stranded.

Furthermore, even if we do not risk ourselves into the prediction game regarding the relaxation of current sanitary measures and the return to normal life, we are very confident about the attractiveness of the destination Monaco, which should only be strengthened as we will emerge from the crisis. A situation that the Principality already often experienced in the past.

As the saying goes, the misfortune of some makes the happiness of others, and this is what should be verified for Monaco.

Currently, and for almost a year now, numerous leading sectors of activity in the wealth of these countries have been to a standstill and household consumption has been falling sharply. The different financial supports and economic recovery plans offered will not be enough for a number of players to survive and the growth will take some time to return to its former level. Moreover, these important measures have a cost, which will have to be reimburse over the next few years, certainly through a higher taxation. 

The economy of neighboring countries, which was already vulnerable before the crisis, combined with political tensions and social protests, are not expected to improve in the coming months - quite the opposite.

The peace and quiet Principality, which despite everything remains dependent on a certain number of factors due to its geographical isolation and the narrowness of its territory within Europe, stays a very unique place. Many key drivers, notably its attractive tax system, its security, and its infrastructures will always make it a sought-after destination for European citizens.

A strong rebound in the property market is expected post-pandemic. The reassuring value of investing in stone in times of uncertainty and low bank interest rates should encourage real estate transactions. The solidity of the Monegasque residential market and its dynamism, particularly with the numerous underway developments, will be serious arguments for a foreign clientele. The whole issue now depends on the evolution of the global health situation.

The whole team at Valeri Agency and I are at your disposal, both in our Monegasque agency and in our recently opened French agency located at the 11 avenue du 3 septembre in Cap d'Ail, to help you with all your real estate projects in the Principality of Monaco and the surrounding area.

 

In Monaco, on 04 March 2021,

Florian VALERI