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House prices can only go up?

In our previous post, we saw how people sometimes compare property prices between different cities and the mistakes they often make when doing so. Another major mistake is to believe that house prices can only go up. In reality, property prices don't always go up, sometimes they stay stable for long periods and sometimes they even collapse. Even if you don't know how to explain the reasons for your real estate investment in detail, you can still be lucky and make money anyway. However, you may also find yourself with losses or gains that would have been much higher with another investment. Another good example to illustrate that just looking at prices to make an investment can be very misleading is to look at property prices in Monaco. A studio in Monaco can easily cost a million dollars, while simply crossing the street (and thus crossing the French border) the same studio would cost a tenth. Does this mean that property prices in Monaco are irrational and that you should rather buy the studio located in France? Well, again, the price level doesn't tell you the whole story. Real estate prices in Monaco are extremely high mainly for tax reasons. If you live in Monaco, the taxes you have to pay are close to 0. On the contrary, if you live in France your taxes will be high. The main consequence of this special tax treatment is that millionaires and billionaires (in particular billionaires) wish to be residents of Monaco. It makes perfect sense for a very wealthy person to pay a lot for a property if this purchase saves them hundreds of thousands or millions of taxes. When you take into account that Monaco is very small with limited properties available, and the people who want to live there are extremely wealthy, you can easily explain the prices. It is important to clarify that we are not saying here that the current real estate market in Monaco is valued fairly.

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