Want to escape taxes, privacy laws? Try Monaco

Monaco, the tax haven on the French Riviera, is experiencing a luxury-housing boom that includes the world's most expensive penthouse as developers prepare for an influx of millionaires and billionaires escaping higher taxes or a loss of banking privacy. A “flow” of new residents is emigrating from Switzerland, where financial-secrecy laws are crumbling, said Jean Claude Caputo, managing director of broker Savills Plc (SVS)'s French Riviera unit. They're drawn by the principality's “security, sophistication and climate,” he said -- as well as for financial reasons. The Swiss government signed an accord in May to automatically share bank data across borders. “High-net-worth individuals want to be in this part of the world,” Caputo said as he drove in his Audi Quattro to Monaco to brief Swiss private bankers on the property market there and help them advise clients considering a move. New levies on luxury homes in London and a U.S.-led global crackdown on hiding assets will also probably attract the affluent to Monaco, which already counts pop stars, Formula One drivers and Russian billionaires among its inhabitants. One in three of Monaco's 38,000 residents are millionaires, according to a study by Spear's magazine and WealthInsight. As that number increases, home values will rise by about a fifth by June 2015, according to London-based Savills. That would almost erase losses sustained since the market's 2007 peak. $400 MILLION PENTHOUSE The Tour Odeon, a double-skyscraper being built by Groupe Marzocco SAM near Monaco's Mediterranean seafront, will contain a 3,300 square-meter (35,500 square-foot) penthouse with a water slide connecting a dance floor to a circular open-air swimming pool. The apartment may sell for more than 300 million euros ($400 million) when it goes on the market next year, French magazine Challenges reported. That would make it the world's most expensive penthouse, according to broker Knight Frank LLP. “We think we can get a little bit more,” Daniele Marzocco, a director at the company, said in June. So far, the developer has found buyers for 26 of the 36 luxury homes that have been offered for sale. A car parking space at the project costs 250,000 euros, Ms. Marzocco said. That's about 50% more than the median value of an existing U.S. home, according to data compiled by the National Association of Realtors. “What we sell is Monaco,” commercial director Niccolo Marzocco said during a viewing of the skyscraper, which is costing more than 600 million euros to build, excluding the land. He cited security, stability and the convenience of living in a city-state about two-thirds the size of New York's Central Park. WHAT $1 MILLION BUYS The most expensive part of Monaco, centered on the Golden Square and The Casino de Monte-Carlo made famous in James Bond films, is already the world's costliest property location ahead of Hong Kong. For $1 million, you could buy about 15 square meters (160 square feet) of space, Knight Frank estimates. That's about a third of the size of the median studio in Manhattan, according to the Naked Apartments website. The principality's residents, who include Russian billionaire Dmitry Rybolovlev and pop singer Shirley Bassey, don't pay taxes on income. The French have to pay taxes there, with certain exceptions dating back more than 50 years. Rybolovlev lives in the Belle Epoque building overlooking the harbor, according to a New York state court filing in 2012. Famous for its Grand Prix, Monaco is home to a host of Formula One drivers such as 2008 World Champion Lewis Hamilton, who moved there from Switzerland two years ago. Caputo at Savills said he could tell whether Alain Prost or Ayrton Senna was leading Formula One races there in the 1980s and 1990s by the sounds of the gear shifts as the cars approached. Senna was much smoother, he said. PRINCESS GRACE The Grimaldi family first took control of the city-state in 1297 when Francois Grimaldi, disguised as a monk, seized the fortress from a rival Italian faction. The family has largely reigned since and is now ruled by Prince Albert II, son of Prince Rainier and Hollywood star Grace Kelly. While Switzerland also has some of Europe's lowest tax rates, it's becoming less attractive to luxury homebuyers as the country's financial secrecy laws are eroded amid a move toward a global standard of information exchange between tax authorities. Other jurisdictions, including Monaco, are looking for ways to tap into the wealth held in the Alpine country. Moving to Monaco is an “obvious” strategy for many of Switzerland's super-rich residents, according to Richard Murphy, co-author of “Tax Havens: How Globalization Really Works.” “You've got to go somewhere where you can flash what you've got and still have secrecy about how you got it,” Mr. Murphy said. TAX TOURIST Asking prices for luxury homes in Geneva have fallen by an average of about 30% in the last 12 months and values have dropped by as much as 6 percent, according to Alex Koch de Gooreynd, a partner at Knight Frank. “The tax tourist, yes, is probably leaving Geneva now because there are so many changes” in Switzerland's rules, though new clients are moving to the city for security and education, he said. Central London's luxury-home market has also shown signs of cooling amid new taxes and more on the horizon. U.K. Chancellor of the Exchequer George Osborne is adding a capital-gains levy next year on homes sold by people living abroad. He's already raised a transaction tax for properties sold for more than 2 million pounds ($3.4 million). Concern about next year's U.K. national election, after the opposition Labour party said it wants to introduce an annual mansion levy, and tax changes in some Swiss cantons are among things “making Monaco look like a very safe, stable place,” said Irene Luke, a broker at Savills who moved to Monaco in 1990 after working as a real estate lawyer with Lawrence Graham LLP in London. “It's becoming more and more like London by the sea.” DEMAND FOR BIGGER HOMES Larger apartments are in demand from homebuyers moving their families to the principality. While just 15 new apartments sold there last year, the average price was 9.3 million euros, compared with 2.9 million euros two years earlier, according to government data. The average price of homes with five bedrooms or more rose 24% last year compared with a 9% decline for studios, according to the report. The Tour Odeon will be Monaco's first high-rise since the 1980s. A quarter of the apartments sold on the open market by Groupe Marzocco have gone to expatriates from the former Soviet Union, the company said, without disclosing where they're based. OFFSHORE ACCOUNTS A model apartment now being offered has 270 meters of internal space and 130 square meters of balconies and is valued at 28 million euros. The lower floors were sold to Monaco's government for use by local citizens, who will enter the building through a separate entrance. The tower's construction began during the global financial crisis. “The government was quite wise” to buy some of the apartments, Daniele Marzocco said. “It also was something at the time to push the economy because we pay a lot of value-added tax, we create employment.” Still, not all property developers are interested in building homes in Monaco. “It's just a crazy market,” Pierre Vaquier, chief executive officer of Axa Real Estate Investment Managers, said in a March interview. “You buy there not only for the environment, but also for the tax regime,” said Mr. Vaquier, who said he's not interested in developing homes in the principality. Monaco has come under pressure to increase transparency. The Paris-based Organization for Economic Cooperation and Development labeled Monaco an “uncooperative” tax haven in 2002, though it was removed from the OECD's list in 2009 after entering exchange-of-information agreements. Those targeted individuals or companies in the principality with offshore accounts, not established residents. “Today, Monaco is more and more onshore,” Daniele Marzocco said. “People have to live here for more than six months. This is good for Monaco, it's good for the economy.” Switzerland in November retained the top spot in a financial-secrecy index by the Tax Justice Network. Some wealthy investors prefer jurisdictions whose legal system is based on British law, such as the British Virgin Islands, due to its predictability. FAMOUS ARCHITECTS Some of the companies building in Monaco have hired well-known architects to build bigger and more luxurious projects. The Yacht Club de Monaco, which opened in June, was designed by Foster & Partners. Societe des Bains de Mer et du Cercle des Etrangers a Monaco, a developer that's controlled by the Monaco government, won planning approval to build apartments, stores and offices on Place du Casino designed by Rogers Stirk Harbour & Partners LLP. Christian Candy's CPC Group Ltd., developer of the One Hyde Park residential complex in London, combined two apartments in Le Park Palace, a weathered apartment block near the casino, and renovated a home in Le Porto Bello overlooking the harbor, according to its website. Candy wasn't available for an interview. Two apartments in the former Mirabeau hotel on Avenue des Citronniers are being offered for sale by Savills. Bids of 45 million euros are being sought for the unfurnished home, while the five-bedroom furnished apartment on the third and fourth floors is valued at 55 million euros. Bouygues SA is in exclusive talks with Monaco's government to build a six-hectare (15-acre) land-extension project in the Portier district. Specifications are still being discussed, Mathieu Carre, a spokesman for the Paris-based construction and telecommunications group, said by e-mail. Monaco will have to further expand into the sea and build more residential skyscrapers like Tour Odeon to cater to the expected influx of wealthy buyers, according to a May report by Savills. “People have looked at the next available place which has a similar type of secrecy environment” as Switzerland and provides a high quality of life, said Murphy, the economist. “Monaco is one place that fits that bill.”