Parisians moving to suburbs
Lalaine C. Delmendo | March 19, 2022
In Metropolitan France, the price index of second-hand dwellings rose by 6.44% (0.6% inflation-adjusted) during the year to Q3 2022, following y-o-y growth of 6.88% in Q2 2022, 7.34% in Q1 2022, 6.93% in Q4 2021 and 7.43% in Q3 2021, according to the National Institute for Statistical and Economic Studies (INSEE).
Quarter-on-quarter, house prices rose by 1.4% (0.3% inflation-adjusted) in Q3 2022.
However, house prices have been either falling or rising meagerly in the centre. During the year to Q3 2022:
- In Île-de-France, the country's wealthiest and most populated region, the average apartment price rose by a meager 0.3% y-o-y to €6,860 (US$ 7,373) per sq. m., according to the La Chambre des Notaires de Paris.
- In the Petite Couronne the average price of apartments rose slightly by 0.9% y-o-y to €5,570 (US$ 5,988) per sq. m.
- In the Grande Couronne the average price of apartments increased 2.9% y-o-y to €3,500 (US$ 3,763) per sq. m.
- In Hauts-de-Seine, one of the country's most populous departments, apartment prices increased by a miniscule 0.4% y-o-y to €6,770 (US$ 7,277) per sq. m.
In Paris, house prices even declined slightly – it seems the capital's high cost of living is prompting some rural relocations. The average price of existing apartments in the capital city fell by 1.1% (-6.6% inflation-adjusted) to €10,660 (US$11,458) per sq. m, based on figures from the La Chambre des Notaires de Paris. In a recent study conducted by the University of Paris and King's College London, almost half of Parisians think that the city is too expensive and 43% believe that they could find a better quality of life elsewhere. The pandemic has clearly been pushing people away from cities towards greener areas.
Demand is falling. Existing home sales in France were down by 6.1% y-o-y in the twelve months to November 2022, at 1,116,000 units, according to the General Council for the Environment and Sustainable Development (CGEDD). Likewise, new home sales dropped 10.1% y-o-y to 79,876 units in the first three quarters of 2022, based on figures from the Ministère de la Transition Écologie.
The French economy, eurozone's second largest, was estimated to have expanded by a modest 2.6% during 2022, following a 6.8% expansion in 2021 and a huge 7.9% contraction in 2020, based on forecasts released by the European Commission. However, the economy is projected to slow further, with a projected real GDP growth rate of just 0.4% in 2023.
Analysis of France Residential Property Market »
Rental returns in Paris are disappointing
The good news is that if you have an apartment in Paris you will have no trouble letting it. Demand outstrips supply, the main reason that rents are not higher being that French rental contracts are often long-term and there are legal restrictions on raising rents during the contract.
However gross rental yields from apartments in Paris are poor, at around 4.2% for small apartments and 3.9% for big apartments (however it is fair to say that our Paris yields results arguably may not reflect yields in less desirable locations, which are likely to be higher, because our sample focuses on Paris' high-end city centre).
The price of a 120 sq. m. apartment in these locations is around EUR 970 per sq. m., or EUR 90.1 per sq. ft. This year, we did not find a big price-difference between smaller and larger apartments.
The average monthly rent ranges from EUR 32 to EUR 35 per sq. m., or EUR 3.8 to EUR 3.25 per sq. ft. Smaller apartments tend to rent for proportionately more.
Round trip transaction costs are high on residential property in France. See our French residential property transaction costs analysis and our Transaction costs in France compared to other countries.
Rental income tax is surprisingly low in France
Rental Income: The effective rate of tax on gross rental income accruing to nonresident foreigners is likely to be around 10.00% on an income of €1,500/month, according to calculations provided by Anthony & Cie.
Capital Gains: Capital gains are generally taxed at 19%. Capital gains tax is levied at 33.33% for non-EU citizens.
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 45%.
Transaction costs are moderate to high in France
Round-trip transaction costs in France can range from 7.90% to 28.99%%. New properties have the highest costs because of the 20% VAT but this is slightly offset by a lower registration fee. Real estate agent fees range from 3% to 10% typically split between buyer and seller.
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.
Economic growth slowing, public finances gradually improvingThe French economy, eurozone’s second largest, was estimated to have expanded by a modest 2.6% during 2022, following a 6.8% expansion in 2021 and a huge 7.9% contraction in 2020, based on forecasts released by the European Commission.
However, the economy is projected to slow further, with a projected real GDP growth rate of just 0.4% in 2023.
“GDP surprised on the upside in the first half of 2022. However, rising inflation, triggered by high energy prices, and continued supply chain disruptions are taking a toll on growth, with GDP decelerating to 0.2% in the third quarter,” said the European Commission. “Specifically, private consumption was flat amid a significant decline in consumers’ confidence while investment picked up strongly, mainly driven by transport equipment. GDP is expected to contract by 0.2% in the fourth quarter.
Before the Covid-19 pandemic, France had been registering an annual average growth of a miniscule 1% in 2009-19.
During the onset of the outbreak, the government launched a stimulus package worth €110 billion (US$117.5 billion), equivalent to 4% of the country’s GDP, to help struggling firms and employees.
As a result, the country’s budget deficit surged to 8.9% of GDP in 2020, sharply up from a shortfall of just 3.1% of GDP in 2019 and 2.3% of GDP in 2018. With improved economic conditions, the deficit eased to 6.5% of GDP in 2021 and is estimated to have fallen further to 5% last year, according to the European Commission. The deficit is projected to be around 5.3% of GDP in 2023.
Public debt is expected to fall gradually to about 110.8% of GDP this year, from 111.7% in 2022, 112.8% in 2021 and 114.6% in 2020. Yet it remains far above the pre-pandemic public debt of around 97.4% of GDP in 2019.
Nationwide inflation stood at 5.9% in December 2022, down from a record 6.2% in the previous month but still far higher than the 2.8% recorded a year ago, based on figures from INSEE. Inflation averaged just 1.2% from 2011 to 2021.
In Q3 2022, the nationwide jobless rate in France stood at 7.3%, down from 7.4% in the previous quarter and 8% from a year earlier, according to INSEE. Unemployment averaged 9.3% from 2011 to 2021.
The number of unemployed people as defined by ILO declined by 17,000 in Q3 2022 over the previous quarter to reach 2.3 million people.
The nationwide jobless rate is projected increase to 8.1% in 2023 before falling again to 7.7% in 2024, based on estimates released by the European Commission.
French president Emmanuel Macron, who was elected last May 2017, has begun taking steps to ease the burden of the country’s onerous labour code, and reduce the distance between the (highly protected) long-term employed, and those who are on short-term contracts or unemployed.
In September 2017, Macron signed a wide-ranging series of decrees to reform the country’s labour laws, despite opposition from labour unions, to make it easier to hire and fire employees. In addition, the new rules increase sanctions on those who fail to look for work.
Then in November 2019, Macron’s government introduced another reform increasing the time people need to work to be entitled to unemployment benefits. Also, the benefit that wealthier workers receive after six months of unemployment was reduced by 30%.
Macron’s tough economic agenda was strongly rejected by the working class, resulting in several months of social unrest. The “yellow vest” protest movement, which began in November 2018 as a peaceful backlash against rising fuel and living costs, quickly morphed into a wider rebellion against Macron’s pro-business economic policies. A total of 11 deaths have been linked to these protests, with 76 others seriously injured.
In a major concession to the protesters, Macron increased the monthly minimum wage by €100 in 2019.
The resilience of France’s labour market during the onset of the Covid-19 pandemic is largely credited to Macron’s market reforms. The unemployment rate has been noticeably falling and the pervasive use of temporary contracts has been declining since early 2018.
“Chances are high that thanks to Macron’s labour policies France looks much better by 2022,” said economist Florian Hense of investment bank Berenberg.
In the April 2022 presidential election, Macron defeated again his far-right challenger Marine Le Pen in the second round of voting.