France: Overview

RENTAL YIELDS

Paris rental yields at 3.4%-4.4%

Yields in Paris have dropped, as house prices have risen. Larger apartments have lower yields, at around 3.42%, while 30 sq. m. apartments have yields of about 4.37%. Monthly rents per sq. m. are at an average of €33.6, with 200 sq. m. and bigger apartments generating the highest yields at around €37.33 per sq. m.

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TAXES AND COSTS

Rental income tax is surprisingly low in France

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	7%	7%	7%
Click here to see a worked example
Source: Disclaimer

Rental Income: The effective rate of tax on gross rental income accruing to non-resident foreigners is likely to be around 7% on an income of €1,500/month, according to calculations provided by Anthony & Cie.

Capital Gains: EU residents and residents of France now pay 16% on the net gain, after inflation relief, and after deduction of acquisition and improvement costs. Non-residents of an EU country pay capital gains tax at a rate of 33.3%, subject to any applicable double tax treaty.

Inheritance: French private international law uses the standard double rule on inheritance: the law of the deceased’s domicile applies to moveable assets, and the law of the location of the property applies to immoveable assets.

Residents: French vresidents are taxed on their global income at progressive rates from 5.5% to 40%.

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BUYING GUIDE

Transaction costs are moderate to high in France

Round-trip transaction costs in France can range from 11% to 19.35%. New properties have the highest costs because of the 19.6% VAT but this is slightly offset by a lower registration fee. Real estate agent fees range from 4% to 10% typically split between buyer & seller.

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LANDLORD AND TENANT

Tenant protection laws are onerous in France

French tenancy law is very pro-tenant.

Rent: Though the initial rent can be freely agreed, the rent can only be revised once a year, and not more than the increase in the (new) INSEE rental index. In combination with a highly restrictive contract structure, this means that rentals of old apartments have tended to drag well behind new rentals and prices.

Tenant Security: An unfurnished property contract has, as a minimum, a three-year term, though furnished property contracts may be for one year. In both cases, even when the contract ends, the owner can only recover the property if he or a family member intends to live there, or he intends to sell. In addition, eviction through the legal system takes a long time.

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ECONOMIC GROWTH

Structural problems besiege the economy

In 2007 there was 2.1% GDP growth, slightly up from the previous year’s 2% growth. Economic expansion in the euro area's second largest economy cooled in the fourth quarter, marking the start of a slowdown that may deepen in 2008. Consumer spending growth eased to 0.4% in the fourth quarter, from the 0.8% in the third. Corporate investment rose 1%, after 1.1% in the third quarter.

France’s underlying structural problems continue. Though economic growth reached 2.1% in 2007, the trade deficit is acting as a drag on growth. France's trade deficit widened to its largest ever in 2007, after oil prices and the euro climbed to record highs, reaching a record 39.2 billion euros ($57.3 billion), up from 2006's 28.2 billion euro trade deficit. The last annual trade surplus was 1.1 billion euros in 2003. Year on year total industrial output - including energy - rose 2.4%.

Unemployment is high, too high to be dented by the modest economic recovery. It has hovered between 8.7% and 10% from 2000 to 2007.

The budget deficit is over 3% of GDP, in what is one of the world’s most highly taxed countries.

France’s adherence to its own brand of socialism puzzles observers. But at present it is still delivering the goods for most of the population, and the economy is working at fairly productivity levels.

Elected on a promise to bring in sweeping reforms, President Nicolas Sarkozy is facing criticism that he has been unable to rev up the economy, with projections showing growth will remain sluggish in 2008.

"Rather than a president who presides, I want a president-leader, involved in everything affecting the day to day life of the French," he said. The number of presidential terms should be restricted to two five-year mandates, and the president should be accountable to parliament.

In August 2007, the constitutional court scrapped part of Sarkozy's planned tax breaks on mortgages which was a blow to his strategy to win over voters with popular and relatively painless reforms, such as tax cuts, before tackling more politically sensitive changes in the labor code.