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According to Global Property Guide, during the housing boom of 1997-2007, house prices in France rose by 150%. In 2008, the financial crisis caused the market to weaken, and then property prices fell by 3.8%, and by another 4% a year later. In 2010, there was a revival, prices rose by 7.6%, then by 3.7% in 2011. In 2012, there was a slight decline (-2%). According to Knight Frank, in the first quarter of 2014, prices in France fell by 1.4% compared to the same period the previous year. But this entire decline is insignificant against the backdrop of how much prices rose between 1997 and 2007.

There is no oversupply in the French market, as construction volumes are declining. First-time buyers are increasingly choosing to hold off on buying. However, most of them will decide sooner or later: renting in France is not as popular as in neighboring Germany, where 54% of the population rents. According to Eurostat data for 2011, 63% of the French are homeowners.

Tax incentives for purchases in new buildings

One of the market incentives is the Duflot law (loi Duflot): part of the cost of the apartment is compensated by tax deductions. If a French citizen buys an apartment on the primary market and undertakes to rent it out for nine years, he can deduct up to 18% of its cost from income tax for this period.

The Duflot Law applies only to residents, but leaseback is available to everyone. By purchasing an apartment in leaseback, the investor receives a VAT refund, but also undertakes to rent out the apartment for nine years by signing a commercial agreement with the management company. In this case, companies usually offer a yield of about 4% per annum and the possibility of using the apartment for several weeks a year. Our statistics show that Russians are poorly informed about this opportunity to invest in French real estate.

Thanks to this approach, the apartments "work": their supply on the rental market balances demand, which is why prices do not rise too quickly. Meanwhile, the state receives income in the form of VAT from the rent.

Unlike France, the rental housing market in Russia is not regulated, and no more than 30% of owners pay tax on rental income. The Russian government promises to fine landlords who evade taxes (although proving such income is difficult), and proposes to reduce the tax rate from 13 to 10%. There are no effective measures to bring the rental housing market out of the shadows on the Russian market yet.

The Duflot Law and leaseback are also aimed at stimulating sales of new buildings, increasing the pace of construction and the growth of the French economy as a whole. After the crisis, construction volumes have been declining: according to capital.fr, in 2013, projects were launched to build 331,900 housing units, which is 4.2% less than the year before. President François Hollande promises to improve the situation and increase construction volumes to 500,000 housing units in the future. The Duflot Law will also help with this. Other positive factors include an increase in the population and low interest rates on loans.

Another measure to reduce the risk of a bubble is a high capital gains tax. Anyone who sells a property shortly after purchase is forced to pay up to 48% of the difference between the original purchase price and the sale price. The tax decreases over time, but only disappears completely 22 years after purchase. This harsh measure makes speculation on resale of real estate unprofitable in the short term.

Building permit

In France, it is difficult to obtain a building permit. This issue is regulated by local authorities on the basis of a territorial development plan (plan local d'urbanisme, PLU), which each commune has. It is forbidden to build objects that do not correspond to the development strategy described in the PLU.

The development plan includes a coefficient of land occupancy (coefficient d'occupation des sols, COS), which determines the maximum percentage of development permissible in relation to the area of the land. For example, the area of a residential building cannot be increased more than the COS allows.

For some eco-friendly projects, it is permissible to exceed urban planning standards by up to 30% - for example, for houses that meet Effinergie standards and consume significantly less energy than conventional buildings. But this is more relevant for construction in the private sector.

A strict approach to building permits reduces the risk that more space will be built than the market needs. Moreover, according to Lara Parenan, director of the Eastern Europe department at AS et Associes, the real need of the French housing market is 750,000 units annually: “We expect an improvement in the legislation and the economic situation to restore the pace of construction.”

Any developer who plans to sell completed apartments on the open market must obtain a bank guarantee before construction begins. This is necessary even if the developer has its own funds for the project. This measure guarantees that if the developer goes bankrupt, the bank will still complete the project and buyers will not suffer. At the same time, the bank has no right to act as a guarantor if the developer does not have preliminary applications from end buyers for at least 20% of the future housing. This insures against the construction of objects that are not in demand by the market.

There is an interesting opportunity for Russian buyers here. The mentioned first 20% of objects are often sold at a small discount (about 5%). Discounts are also possible at the last stage of construction, when the developer is in a hurry to close the bank guarantee and thereby gain access to a new guarantee for the next project. It often happens that by closing the previous project, the developer can get a loan on more favorable terms than with the pending previous project.

Payments and taxes

All new construction is carried out on the basis of efficient energy saving standards, which are tightened annually. In addition, electricity tariffs in new apartments are lower than in old ones. Therefore, a buyer of an apartment in a new building can be sure that the payment for utilities in it will be significantly lower than in a similar apartment on the secondary market.

Utility bills consist of a common and an individual part. The common part includes the fee for the elevator, water, and concierge services (an average of 18 euros per 1 sq. m. per year). Individual payments are made for electricity, gas, and heating. In total, utilities in France cost an average of 40 euros per 1 sq. m. per year. According to the French National Association of Realtors (FNAIM), housing maintenance in Paris costs an average of 2,167 euros per year, or 32.90 euros per 1 sq. m. This amount includes expenses for the salaries of service personnel (970 euros), heating (610 euros), elevator maintenance (182.85 euros), insurance (150.26 euros), and deductions to the housing management (155.20 euros). Buyers of new housing are exempt from property tax (taxe fonciere) for two years.

In addition, the amount of taxes depends on the economic success of the area. In areas with a large number of firms and enterprises, taxes are usually lower. And where there are few registered legal entities, the taxe fonciere is often higher, since local authorities "collect" taxes from residents.

For example, according to capital.fr, in Boulogne-Billancourt, a prestigious suburb of Paris, the taxe fonciere averages 614 euros, in Paris - 635 euros, and in Toulon - 1033 euros. Local authorities hope to get more money for the budget through taxes; the poorer the region, the more money is needed.

A similar principle applies in Switzerland: the lowest income tax (approximately 19%) is paid in the municipality of Wollerau (canton Schwyz), where the people with the highest per capita income in Switzerland live. They have a large amount of tax payments in monetary terms, so the rate is reduced.

The described measures of state regulation in France have a positive effect on the state of the real estate market. Risks for all market participants are reduced both in a tactical sense and in the long term. Construction that meets modern engineering standards and efficient energy consumption is stimulated. n The author is the head of tranio.ru. The article was written specifically for "Zhiloy Fond".

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