France: Overview

RENTAL YIELDS

Last Updated: Jul 20, 2009

Average yields in France, poor

Gross rental yields in Paris range from 3.61% on 200 sq.m. apartments, to 5.26% for 20 sq.m. properties. Average gross rental yields are relatively poor, at 4.30%.

The Global Property Guide estimates that 120 sq. m. apartments in Paris cost around €9,961 per sq. m. The most expensive properties in our Paris sample are 200 sq. m. properties which average €10,893 per sq. m..

Smaller apartments have the highest yields, reaching up to 5.26%, while 200-sq. m. apartments generate the lowest yields of about 3.61%.

Monthly rents per sq. m. are at an average of €36.2 per sq. m.

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TAXES AND COSTS

Last Updated: Oct 17, 2008

Rental income tax is surprisingly low in France

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	5.8%	5.8%	10%
Click here to see a worked example
Source: Disclaimer

Rental Income: The effective rate of tax on gross rental income accruing to nonresident foreigners is likely to be around 5.80% 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. Nonresidents 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 residents are taxed on their global income at progressive rates from 5.5% to 40%.

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BUYING GUIDE

Last Updated: Mar 26, 2007

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

Last Updated: May 25, 2006

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

Last Updated: Sep 07, 2009

Economy recovers, but more challenges ahead

With a population of 62.3 million, France has one of the biggest economies in Europe. Yet France’s adherence to its own brand of socialism puzzles observers, especially perhaps Anglo-Saxons. From 2001 to 2007, private sector wages grew faster than the economy (wages grew by an average of 3.1%, compared to 1.8% average annual GDP growth). In 2008, France’s GDP grew by 0.3%, while wages still rose by 2.9%.

The strength of unions and lack of labour market flexibility has affected France’s competitiveness. Generous unemployment benefits have led to structurally high unemployment rate, at 7.8% in 2008, though this is the lowest in more than two decades. Despite the economic rebound, the unemployment rate is expected to exceed 10% by the end of 2009.

Nevertheless, the generous social welfare system is widely credited as a major factor that pushed the economy out of recession. Automatic economic stabilizers such as this prevented a massive fall in domestic demand that tend to prolong economic recessions.

After entering recession in Q3 2008, France’s economy was expected to contract by 3.3% in 2009. However, GDP grew by a surprising 0.3% in Q2 2009, making France one of the first countries in the Europe Union (EU) and the OECD to get out of recession.

The increase spending for social security, nevertheless, is putting a strain on the government budget, already burdened by the fiscal expansion of late 2008. The main social security scheme’s deficit is expected to double to €20.1 billion by end-2009, and rise further in 2010. The budget deficit as a percent of GDP is expected to rise to around 8% in 2009, and 9% in 2010, up from 3.4% in 2008.