Andorran MPs are changing real estate rules as web celebrities and wealthy foreign investors flock to the tax haven.
One of Europe’s smallest states, nestled between France and Spain, has introduced a temporary ban on foreigners buying real estate.
Known for its ski resorts, mild summer temperatures and generous tax breaks, Andorra is a popular destination for wealthy expats, but their influx has caused a housing crisis in the principality. “Locals” are struggling with rising housing costs.
Property prices in Andorra have soared by more than 30% since mid-2018, forcing many poorer residents to relocate to neighboring Spain.
Between the last quarter of 2022 and the first of 2023, real estate prices saw a 13% increase in the microstate, according to Spanish newspaper El Diario.
In 2022, the Andorran government authorized 500 requests to purchase real estate from foreign investors, for a value of nearly 183 million euros.
Ban on foreign investments
The three-month ban on foreign investment, passed last month, aims to combat the housing crisis by banning non-residents from investing in real estate. It will then be replaced by a tax on all purchases of real estate by foreigners.
The proceeds from this tax will then be used to build more affordable rental housing. According to several Spanish real estate sources, the average price per square meter in Andorra can reach 4,700 euros, more than in most areas of Barcelona.
As the monthly minimum wage in Andorra is less than 1,300 euros, less well-off nationals have difficulty finding accommodation in their country of origin.
Although a first step in supporting local Andorrans, critics have raised doubts about the ban’s effectiveness.
The restrictions will only apply to non-residents, meaning the number of wealthy foreigners applying for residence permits could increase.
If you have money, it’s not too difficult to become a “passive resident” in Andorra, as you are only required to live there 90 days a year.
Due to the nature of the permit, you are not allowed to be employed by a company based in Andorra, but this makes it an ideal option for wealthy digital nomads who receive income from abroad.
Many passive residents are required to invest at least 600,000 euros in the country, most of which is in real estate, but this requirement can even be waived if you earn money outside the state.
Mandatory minimum level of Catalan expected
The new ban on investing abroad will not be the only obstacle for foreigners wishing to acquire property in Andorra: they will also have to improve their language skills.
From 2024, residence permit holders will have to prove that they speak basic Catalan to obtain the renewal of their permit.
The new law aimed at protecting the language of the micro-state provides for a 30-hour Catalan course, except for people who can demonstrate a minimum A2 level in this language.
The language requirement and the ban on investing in real estate are not without criticism.
Agustin51, a Spanish YouTuber with 5 million subscribers who has lived in Andorra for five years, criticized the Catalan measure. He was in turn criticized for going so far as to wonder whether Andorra was a dictatorship.
This is not the first time critics have attacked foreign YouTubers in Andorra, with some accusing them of being among the wealthy foreigners fueling the housing crisis.
In 2021, El Rubius, one of the most influential Spanish YouTube stars, announced that he was moving to Andorra. Social media users condemned the choice of the YouTuber with 12 million subscribers, pointing out that low taxes were likely his main motivation.
Additional reporting by Héloïse Urvoy