The weakened Euro, abolition of some punitive taxes on non-resident owners and the continued fall in property prices have improved conditions for overseas buyers in the Paris property market, reports Laurent Lakatos of Databiens…
Improved fiscal environment
In December 2014, France’s 2014 Amended Finance Act and the 2015 Finance Act introduced a number of tax changes. Non-residents will see a reduction in the rate of Capital Gains Tax (CGT) generated from the sale of French real estate, down from 33.33% to 19%. This is because France’s 15.5% ‘social surtax’ (applied to non-residents since 2012 on rental income and real estate gains) has been under scrutiny by the European Court of Justice for being incompatible with European Union (EU) Social Security regulations.
Taxpayers in other EU-member states who own French property and have been paying this tax since 2012, could therefore be retrospectively reimbursed. Although there will still be some exceptions, this change marks a positive step forward for overseas investors.
This year also brings encouraging news for high earners in France. The government announced it would be ending its much debated ‘exceptional’ 75% tax rate, which has been applicable to individual gross incomes over €1 million in 2013 and 2014.
The Eurozone’s wider economic woes, including unemployment at 11.3% in January 2015 and annual inflation of -0.3% in February 2015 continue to impact France’s economic outlook. The European Central Bank’s (ECB) quantative easing and bond-buying programmes, announced in 2015, have seen the Euro weaken further.
It is now worth US$1.06 and £0.72, compared to a year ago (March 19th) when it was US$1.39 and £0.83 (XE.com). This spells positive news for overseas investors, for whom Paris property looks increasingly cheaper.
As home sellers increasingly accept lower offers from buyers, price falls are being recorded across France. Official (INSEE) figures show a 6% decline (seasonally adjusted) in house prices nationally in the final quarter (Q4) of 2014 compared to their Q3 2011 peak. Transaction levels have fallen further, with 9% fewer sales across France in 2014 than in 2011 (CGEDD*).
In the capital, the relationship between price correction and sales agreed continues to be sought, with good opportunities for buyers. For example, a large 16th arrondissement property initially launched in 2012, eventually took two years and a 20% price reduction in order to sell. Large properties, of four bedrooms plus, comprise more than half of all properties listed on the market, according to Databiens, and are sticking there, owing to reduced demand.
The Loi ALUR, which sought improved protection of tenants, has also led to reduced demand for buy-to-let properties among investors. Valuation methods are out-dated One reason for the stagnating volume of sales is the lack of precise valuation techniques, according to Databiens. Agents continue to base their valuations on average prices per square metre achieved by location, rather than on the merits of a particular building or property. In contrast, prices should reflect not only location, but also variations in build quality; this would improve professionalism and also stimulate the market.
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