Last updated: May 12, 2012 1:16 am

Small wonder

The tiny principality of Andorra is appealing to a new ‘VIP’ category of residents and entrepreneurs

When Jane Whittaker arrived in the Principality of Andorra 25 years ago, this tiny country, wedged in the Pyrenees between Spain and France (with a surface area of just 468 sq km), was a high-altitude backwater.

“It took five hours over poor roads to get to the airport in Barcelona, which is still the key route into and out of Andorra,” says Whittaker, an English woman who operates Living in Andorra, an expat relocation service.

Upgrades to Spain’s highways and the Andorran predilection for fast driving mean that today the 200km journey usually takes less than three hours.

Meanwhile, the appearance of much of Andorra, and its diminutive capital Andorra la Vella, home to around a third of the country’s estimated 73,000 residents, was transformed during a construction boom that began in the 1990s, mirroring the building frenzy in Spain. As was the case elsewhere, the boom fizzled out at the end of 2007 when the credit crunch hit.

“House prices have dropped 20 to 25 per cent across the board since then,” says Christian Muñoz of Roc Propietats, a local estate agency. “Some apartments have fallen in value by a bit more, but overall price drops have not been as sharp as in Spain.”

According to the Andorran government, since 2008 as many as 7,000 foreign residents have left the country, leaving their apartments empty. But changes to the rules on foreign residency may mean that a new generation of overseas homebuyers is soon beating a path to Andorra.

The Organisation for Economic Co-operation and Development removed Andorra from its “grey list” of un-cooperative tax havens in 2009. Andorra, which is not part of the EU (so the union’s rules on freedom of movement do not apply) has pledged to introduce income tax and plans to overhaul its “passive residency” scheme. Until now this has operated on the basis of quotas, usually capped at 500 applicants each time. Most arrive from western Europe, but some have come from as far away as Singapore and Belarus.

Map of Andorra

Passive residents pay no tax on their earnings outside the country, but must spend at least 183 days a year in Andorra. Under the draft legislation, they will also have to invest €400,000 in the country, either in the form of property or government debt.

“We want to attract people who really want to spend time in Andorra. Tax advantages will be one of the reasons people set up here, but they won’t be the only reason,” says Marc Vila, Andorra’s minister of the interior.

The government hopes to attract sportsmen, writers and scientists in a new “VIP” category of passive resident. It also wants more entrepreneurs to come to the land-locked state, to diversify an economy founded on winter sports and the sale of cut-price cigarettes, petrol and perfumes.

“The passive residency arrangements were originally framed as essentially a way for retired people to spend time here,” says Vila. “But we also want to attract more business know-how to the country.”

The downturn is, in any case, a relative term in Andorra. A very small number of people are registered as unemployed and the country feels prosperous and polished.

So who is buying homes? Wealthy people from Barcelona looking for a bolt-hole in the mountains bought enthusiastically until the recession came, and Muñoz says that many of his enquiries are now from the UK.

The country’s geography has had an impact on its housing stock. Unlike in some Spanish cities, where expansion was a straightforward matter of building over flat land, most of the space available for development during the boom in Andorra la Vella, which is nestled in a narrow valley, was hillside.

Many new homes thus have impressive, unobstructed views of the mountains, which are snow-capped until late spring. An example is a four-bedroom penthouse next to the French Embassy in Andorra la Vella, with 209 sq m of living space and a large terrace. The property is available through Lucas Fox for €1.85m; there are few apartments for sale above this price.

Detached homes, usually referred to as chalets, are more commonly found in smaller communities, such as pretty Ordino, and La Massana, 6km from the capital, which is a popular hiking and mountain biking centre in the summer months and has a clutch of high-end restaurants. A five-bedroom chalet with a library and games room in La Massana is for sale for €2m through the Invico estate agency.

In the small village of Pal, 12km from Andorra la Vella, Roc Propietats is offering a chalet with three bedrooms, 225 sq m of living space and a mature garden for €750,000.

By law, all new dwellings have to be clad at least partly in local slate, which gives a homogenous feel to the built environment. Non-Andorrans are permitted to buy a single property in the country but doing so neither guarantees residency nor means that it has to be applied for.

The boom left a slew of flats for sale in the €200,000 to €300,000 price band in the capital and a small number of unfinished projects, particularly in plots close to ski lifts. At all price categories there is abundant supply, but any impression of a buyer’s market is tempered by the fact that forced sales are uncommon and locals are often loathe to drop their asking prices.

“Last year was not a good year for the real estate sector here,” says Muñoz, “but there is some demand from overseas buyers and I think prices will rise in the medium term.”

Better transport connections, too, would increase property values and raise Andorra’s profile. There are hopes that scheduled flights to the UK, Paris and elsewhere will be introduced at the end of the year from a small airport at La Seu d’Urgell just across the border in Spain; there are also plans for a heliport in Andorra la Vella.

Meanwhile, home-owners can generally expect to pay rates of under €150 per year, according to Whittaker.

“In return, snowploughs clear the roads very efficiently and rubbish is collected 362 days a year. Residents can use the ski lifts inexpensively and, each spring, the local council fills public spaces with plants and flowers,” she says. “As you can see, we get great value for our money.”

Nick Foster was the guest of the National Tourist Office of Andorra, www.andorra.ad

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Buying guide

Pros

● Safe and secure environment

● Excellent skiing and hiking

● Favourable tax system

Cons

● Far from an international airport

● Parts of the country are builtup

● Smoking is often permitted in public

What you can buy for ...

€100,000 A studio flat in a ski resort

€1m A four-bedroom detached house

Contacts

www.rocpropietats.com

www.lucasfox.com

www.invicoandorra.com

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