Property Traders in Monaco New Law
On Thursday, June 27, 2024, the national councilors voted on a law regulating property traders. Until now, these resellers were not subject to any specific regulations in the Principality. The law provides a definition of property traders' activities and the rules they must follow. How will this new law affect the price per square meter in Monaco in the future, and what will be the consequences?
Property traders, by buying apartments to renovate and resell with a profit, have played a key role in transforming the Monaco real estate market. There is a global trend where this profession is highlighted, notably by popular TV shows like "Flip or Flop" in the United States. These shows have democratized the idea of becoming a property trader, attracting many amateurs and professionals to this lucrative activity. However, in a micro-state like Monaco, this trend has a major impact on the market.
On one hand, property traders have elevated the level of renovations, producing luxurious and high-end apartments, significantly improving the real estate offering. However, their economic model based on achieving profit margins has contributed to exponential inflation in real estate prices. This speculation has made the market inaccessible to many potential buyers, thus unbalancing the sector.
Real estate professionals in Monaco, including agencies and clients, have felt the impact of this price increase. While the rise in property values has benefited long-term investors, it has also created unfair competition and put pressure on real estate agency commissions.
With over 300 property trader licenses issued, the need to regulate this profession has become crucial. The new legislation aims to stabilize the market by imposing strict rules such as financial guarantees, compliance obligations, and penalties for non-compliance. This law is welcomed by real estate professionals who hope it will restore a healthy balance in the Monaco real estate market.
In this article, we will examine what will change for property traders, what will change for clients, and the overall impact on the Monaco real estate market. We will also offer our professional perspective on this new legislation and its future implications.
What is a Property Trader in Monaco?
A property trader is an individual or entity that habitually performs real estate transactions, purchasing properties, businesses, or shares with the intent to resell them for a profit. This economic model relies on buying properties at attractive prices, renovating them, and selling them at a higher price.
In the Principality of Monaco, this profession has thrived due to the flourishing real estate market. Property traders buy properties often in poor condition, significantly renovate them to increase their value, and resell them at higher prices, thus making a profit. This renovation process improves the overall quality of properties on the market, offering modernized and attractive apartments for buyers.
Unlike real estate agents and negotiators, property traders own the properties they resell. Real estate agents, like those from our company Petrini Exclusive Real Estate Monaco, one of the most reputable agencies in Monaco's real estate market, act as intermediaries between buyers and sellers and do not own the properties they sell. This distinction is important as it highlights the direct responsibility of property traders in improving and enhancing the properties they purchase.
Real estate agents primarily focus on facilitating transactions, offering brokerage services to find buyers or sellers, negotiate deals, and finalize sales. In contrast, property traders take financial risks by investing directly in properties, often renovating them extensively before reselling. Their goal is to maximize the added value through significant improvements, requiring in-depth knowledge of the real estate market and project management skills in renovation.
Thus, property traders play a crucial role in the real estate market by improving the quality of housing and contributing to economic dynamics through their investments and renovations. However, their intense activity has greatly contributed to real estate price inflation, making the market increasingly inaccessible to many buyers. In seeking to maximize their profits, they have disrupted the Monaco market, causing a price increase that has penalized local buyers and destabilized the entire real estate sector. This phenomenon has made legislative intervention necessary to regulate this activity and protect the Principality's real estate market.
Legislative Context for Property Traders in Monaco
Before the adoption of the new law, property traders in Monaco operated under a common law regime without specific regulations. Law No. 1.144 of 1991 and Law No. 1.252 of 2002 govern economic activities and real estate operations, but these texts did not directly apply to property traders. This lack of legislative framework allowed for a rapid and unregulated expansion of this activity, leading to real estate speculation that had a significant impact on the market.
Property traders benefited from advantageous tax conditions, including partial exemption from registration fees under certain conditions. This allowed them to perform purchase-resale operations with significant profit margins. Although this contributed to the enhancement and modernization of the real estate stock, it also led to an overrepresentation of this profession in the Monaco real estate market, with more than 300 active property traders at any given time. This situation created inflationary pressure on real estate prices, making housing increasingly inaccessible for local residents.
Property traders operated without specific regulations, allowing them to exploit system loopholes to maximize their profits. Law No. 1.144 of 1991, concerning the exercise of certain economic and legal activities, and Law No. 1.252 of 2002, on the conditions of exercise of activities related to operations involving real estate and businesses, did not specifically cover the activities of property traders.
As a result, property traders could buy and sell properties with few restrictions, benefiting from advantageous tax conditions. For example, they were partially exempt from registration fees, significantly reducing their costs when acquiring properties. Moreover, there was no obligation to carry out significant renovation work, allowing some property traders to speculate on properties without investing in their improvement.
This situation led to intense real estate speculation, with property traders seeking to maximize their profits by buying at low prices and selling at much higher prices. This dynamic contributed to a rapid increase in real estate prices, making the market less accessible for local buyers and creating a significant imbalance in the Monaco real estate sector.
Recognizing a significant increase in the number of property traders operating in the Principality, the government considered this activity sufficiently represented and felt that issuing additional licenses could have negative effects on the concerned sector's economy. The decision to limit the number of licenses issued partially responded to concerns expressed by real estate professionals regarding the multiplication of property traders and the insufficient work carried out on acquired properties.
The need to regulate this profession became evident to stabilize the market and protect the interests of residents. The new law, voted on June 27, 2024, aims to correct these imbalances by introducing strict rules for property traders to ensure fair competition and reduce excessive speculation.
New Law for Property Traders in Monaco
The new law, voted on June 27, 2024, introduces several significant changes to regulate the activity of property traders in Monaco. Here are the main aspects of this legislation:
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Clear definition of the activity: The law specifies that the activity of a property trader consists of individuals or entities performing operations of purchasing real estate, businesses, shares, or social parts to resell them with a profit. This definition clearly distinguishes property traders from other real estate professionals such as real estate agents.
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Compliance obligations: Property traders must ensure that the properties they resell comply with electrical and energy standards. This measure aims to ensure that properties on the market meet current quality and safety standards.
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Financial guarantee: Any individual or entity wishing to operate as a property trader must obtain a financial guarantee from a bank or authorized financial institution with its head office or branch in Monaco. This guarantee aims to cover registration fees in case of payment default by the property trader.
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Renovation work: Property traders must carry out renovation work representing at least 5% of the property's acquisition price. This work must be performed by companies domiciled in the Principality, thus favoring the local economy.
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Liability insurance: Property traders must take out an insurance policy covering the financial consequences of their professional liability. This insurance must be obtained from a general insurance agent or an accredited broker in Monaco, ensuring protection for clients against damages that may occur within the scope of the property trader's activity.
These new obligations impose greater rigor and additional costs on property traders to comply with the legislation. However, they also aim to further professionalize the sector and strengthen consumer confidence in real estate transactions. Professionals will need to adapt their practices to meet these requirements, which may include more significant investments in renovations and stricter financial management of their activities.
Property traders must also prove their effective residence in the Principality to obtain authorization to operate. This measure aims to ensure that those operating in the Monaco market have a strong connection with the Principality, thus reducing the risks of external speculation.
Moreover, the removal of the total exemption from registration fees, replaced by a partial exemption conditional on the completion of work, will encourage property traders to carry out significant work on the properties they buy, thus contributing to the improvement of Monaco's real estate stock.
Impact of the New Law on the Real Estate Market
Expected Short-Term Effects
In the short term, the implementation of this law is expected to have several notable effects on the Monaco real estate market. First, the introduction of new obligations and strict conditions for practice should reduce the number of property traders operating speculatively. By imposing financial guarantees and compliance obligations, the law aims to eliminate opportunistic actors who exploited system loopholes to make quick profits without truly investing in property quality.
Reducing the number of active property traders should help stabilize the market by decreasing the inflationary pressure on real estate prices. Indeed, fewer speculators mean fewer artificially inflated transactions, which could slow down the price increase and make the market more accessible to local buyers and permanent residents.
Long-Term Prospects
In the long term, increased regulation should bring a series of lasting benefits to the Monaco real estate market. Here are some positive prospects:
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Price stabilization: By limiting excessive speculation, the law will help stabilize real estate prices, allowing for more sustainable and predictable growth. This will make the market more attractive to serious buyers and long-term investors.
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Improvement in the quality of the real estate stock: Compliance obligations with electrical and energy standards will ensure that properties on the market are high quality, safe, and meet modern standards. This quality improvement will benefit buyers and increase the attractiveness of real estate in Monaco.
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Encouragement of significant renovations: By requiring property traders to carry out work representing at least 5% of the property's acquisition price, the law will encourage significant renovations that will improve the overall real estate stock. This will also favor local employment by involving construction companies based in Monaco.
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Increased tax revenues: With the end of the total exemption from registration fees and the introduction of a partial exemption conditional on the completion of work, the law will increase tax revenues for the state. These additional funds can be reinvested in public projects and infrastructure, thus strengthening the local economy.
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Increased confidence in the market: Enhanced regulation and oversight will bring greater transparency and increased confidence in the real estate market. Buyers and investors will be assured that transactions are conducted within a secure legal framework, which can attract more quality investments.
These long-term prospects show that the new law, while imposing additional constraints on property traders, aims to create a more stable, transparent, and high-quality real estate market, beneficial for both real estate professionals and Monaco residents.
Property Traders in Other Countries
Comparisons with Other Jurisdictions
The introduction of Law PL1064 in Monaco is part of a global trend of increased regulation of real estate activities. Worldwide, many jurisdictions have implemented measures to regulate property traders and stabilize real estate markets. Comparing the Monaco law with those in force in France, the United Kingdom, Italy, Germany, and Russia provides a better understanding of the specifics and advantages of this new legislation.
Comparison with France
In France, property traders are subject to strict regulations, including tax obligations and renovation standards. The Monaco law draws inspiration from these regulations but goes further by imposing specific financial guarantees and stricter compliance obligations. This approach aims to enhance property quality and protect buyers from speculative practices.
Comparison with the United Kingdom
In the United Kingdom, property trader activities are also regulated, with obligations regarding transparency and compliance with safety and energy efficiency standards. The Monaco PL1064 law adopts a similar approach but places particular emphasis on involving local companies in renovation work, which stimulates the local economy and ensures high standards.
Comparison with Italy
In Italy, regulations concerning property traders are less strict than those in Monaco. While property traders are subject to tax obligations and renovation standards, the regulatory framework is more flexible, which can lead to disparities in renovation quality and less transparent transactions. The Monaco law offers a more rigorous and protective framework for buyers.
Comparison with Germany
Germany has a strong regulatory framework for real estate activities, including obligations for transparency and strict safety standards. Property traders in Germany must comply with strict requirements regarding renovation and energy compliance. The Monaco law shares several of these characteristics but stands out with its emphasis on involving local companies in renovation work, thus favoring the local economy.
Comparison with Russia
In Russia, the real estate market is less regulated compared to Monaco. Property traders can operate with greater flexibility, which can sometimes lead to speculative practices and variable renovation quality. The Monaco PL1064 law stands out with its high requirements for financial guarantees, compliance, and liability insurance, thus offering increased protection for buyers and stability for the real estate market.
These comparisons show that the Monaco law is in line with international best practices, while adapting regulations to the specificities of the local market.
Property Traders in Monaco, What Future?
Law PL1064, voted on June 27, 2024, marks a crucial step for the Monaco real estate market. This legislation aims to rigorously regulate the activity of property traders, a sector that has long operated without specific regulation. By imposing strict obligations such as property compliance, significant renovation work, financial guarantees, and liability insurance, this law aims to stabilize the market, protect buyers, and promote more transparent and fair practices.
Property traders, while facing additional constraints, will benefit in the long term from a more transparent and stable market. The new regulation should also reduce excessive speculation that has contributed to real estate price inflation, making the market more accessible to local buyers and permanent residents. Real estate professionals, including reputable agencies like Petrini Exclusive Real Estate Monaco, welcome this initiative that enhances the credibility and quality of real estate transactions.
Comparing the Monaco law with those of France, the United Kingdom, Italy, Germany, and Russia, it appears that Monaco adopts a rigorous and protective approach, favoring both the quality of real estate and the local economy. This legislation, though demanding, promises a more balanced and reliable future for the Principality's real estate market.
The long-term prospects are promising: price stabilization, improvement in property quality, tax incentives for significant renovations, and increased confidence in the market. Ultimately, Law PL1064 aims to create a healthier, more transparent, and high-quality market environment, beneficial for real estate professionals, buyers, and the Monaco economy as a whole.
Thus, this legislation constitutes a major advance for Monaco, aligning with a global trend of increased regulation of real estate activities, while addressing the unique specificities and needs of the local market.
