Can France really be one of the most transparent global real estate markets with confusion high over proposed new second homes tax?
The latest biannual Global Real Estate Transparency Index 2012 by Jones Lang Lasalle has ranked France amongst one of the most transparent real estate markets in the world. However, this accolade is in question as it seems that rather than attempt to make the French property system even more transparent, the French government’s proposed taxation changes have caused great concern and confusion with potential and existing foreign owners of second homes in France.
According to this year’s well respected Global Real Estate Transparency Index which rates countries on 83 criteria, grading them between being perfectly transparent (1) and opaque (5), France ranks 7th in its “transparency” status based on factors such as sales transactions, debt regulation, land and property registration, direct property indices and corporate governance. With this in mind, it would seem that France’s proposed tax hike on rental income rising from 20% to 35.5%, and capital gains tax on property sales rising from 19% to 34.5% – the extra in each case being branded a "social charge" would be detrimental to the French property market.
Marcel Van Peteghem, Partner at French legal advice & property law firm Anglo French Law comments,
“Let us for one moment muse upon a number of points regarding this proposed measure. Firstly, it is difficult to see how non-residents can be charged “social taxes” from which they can never derive a benefit. Secondly, there are some complex pieces of EU law that deal with this and these may yet prove to be the undoing of this proposal. Sarkozy went down this route on foreign owned property taxes of a different kind only to U turn later when he had gained the maximum mileage out of it to a domestic French audience, much to the alarm of UK owners and buyers.
“Indeed, there are varying estimates as to how many Brits own French property as second homes in France either as static investment or actively generating an income from long or short term rents, most agree on approximately 600,000. Thus the likely net tax take from the exercise of taxing a relatively small non-resident section of the property owning community on small scale rental income is likely to be minimal when one takes into consideration the added administrative costs and collection by well-paid civil servants. It is fairly clear that the implementation will have little if any financial gain for the French exchequer but will instead further depress an already subdued property market.
“As for the UK French property owner; unlike buying a second property in any town anywhere to rent out for a profit, most Brits own property in France because they love the country and enjoy visiting which means it is quite likely that the tax proposal will be of secondary consideration. Brits that use their holiday homes and then also rent them out for a few weeks of the year to cover the existing taxes may have to add just one or two extra weeks to that endeavour to cover the proposed rental social charge levy.”
However, in spite of the suggested tax hikes, those thinking about buying a French holiday home will be able to make savings from France’s forecast average property price fall of 5-6% this year according to Crédit Agricole, one of France´s largest banks with expert’s intent on promoting this decline as an alteration rather than a property crash. Indeed, the weakening Euro and falling house prices have made French property cheaper for Brits, with the cheapest rates since October 2008 being seen.
Furthermore, even with falling prices and an accolade as one of the most transparent real estate markets, existing and potential French property buyers might still feel a little dubious about entering the market. Providing further reassurance to panicked buyers, Van Peteghem explains:
“It’s important to remember the proposed measure will not affect anyone going to live in France, retiring or relocating for any one of the many reasons people do. We must remember that the Assembly may not vote this through and the French constitutional court may end up dismissing this move altogether.”
With retirement in mind, The Villages Groups active living ‘Village’ resorts for the over 50’s in France, designed for permanent residents is just one example of how buyers won’t be affected.
For a great life at an affordable price, the Languedoc-Roussillon region in France will make for a wonderful place to relocate. Chosen for its three C’s – climate, coast and countryside Languedoc is one of the most visited parts of south west France and as a result of Languedoc’s popularity, The Villages Group has decided to develop their first “active living” village community of 107 villas at the UNESCO World Heritage Site of Canal du Midi, one of Europe’s longest and widest canal systems.
For more information please contact The Villages Group on + 33 1 4007 8625, email villages@pdfparis.com or visit www.thevillagesgroup.com.