But the tax haven of Andorra goes against economic reasoning and could see a rise in value this year - over the inflation rate - just as it has done over the last five years.



There are good reasons why demand for Andorra property - and a further rise in value - is likely to happen.

The top reason is that Andorra is a tax haven, and the wealthy buy property to gain residency in Andorra for her tax haven status.

Even in times of recession Andorra is popular as the wealthy want to preserve their wealth, and having Andorra residency means their capital is free of many of the taxes they would have to pay in their homeland.

Andorra is also known for her ski holidays, competing directly with French ski holidays, and Andorra apartments are often bought by skiers for a holiday home, and rented out for income while not skiing themselves.

A third stream of buyers come from the local market, Andorra has some 80,000 people living in the country full time, with many people upgrading or downsizing, meaning Andorra has three streams of property buyers - the local market, those buying for her tax haven status, and holiday home buyers for the skiing.

Andorra Ski

Last year saw a slowing down of the world's economy, and property markets shortly after the economic downturn news slowed down too.

Andorra achieved a near 5 per cent increase in her property values in 2007, and some potential buyers considering residency are assuming that real estate in Andorra could see a fall in value in the year ahead, as other markets start to fall.

But according to Tribune Properties, who specialize in Andorra real estate, they could well be wrong in their assumptions.

They report that based on the first half of 2008, the full year will be similar to 2007, with a near 5 per cent rise in property values. But they have noticed some difference in the last twelve months in what buyers expect, and the amount of money people are spending.

'Over the last twelve months the average purchase price of an Andorra property has risen surprisingly,' they say, adding 'Two years ago the majority of our sales were for apartments around the 300,000 Euro level. Now we're selling as many properties in the half a million to million Euro bracket as we are at the 300,000 Euro level.'

Part of the increase in value of the typical Andorra property now being sold is due to the better known European tax haven of Monaco, where there is a shortage of property, and real estate ranks among the highest in the world. It's now rare to find even a studio apartment in Monaco under a million Euros - and for the same money and tax benefits that would buy a good house in Andorra.

'It used to be said that you could see property buyers filling the lounges of Monaco's hotels - it's now the hotels in Andorra where the buyers are', claim the property company.

With a new airport set to open in two years time, Andorra could see property prices rise further in the years ahead.