Buying new construction in France has never been so interesting for foreign buyers this year. Normally, around 75% of apartments are sold to locals. These elderly people sell a large family villa and move to a smaller one in the same area. Or young couples who buy their first apartment. And that is why sales usually go quickly: when you think: ‘that apartment with a sea view seems nice to me’, it turns out that the French neighbour has already reserved it.
The French tax authorities are also friendly to French buyers of new construction: those who invest in new construction and rent the home to their children pay up to €63,000 less income tax (la loi Pinel). And those who invest in social housing pay a 30 to 40% lower price, receive tax benefits and of course the monthly rental income. For this, the usufruct, nue-propriété, must be granted for fifteen or twenty years. After that, the home can be rented out again or used by the buyer.
For certain new construction projects, a French taxpayer can also pay a lower VAT amount in the purchase price. The new construction price normally includes 20% VAT, but in some cases, this is only 5.5%. Perhaps a reason to live and work in France? Or retire in the South of France ;-)
Interest in France
The average French buyer has a job in France and prefers to take out a mortgage with a trusted local bank. With a permanent employment contract (CDI), one is quickly offered a loan. However, the interest rate offer is no longer attractive. Until recently, the mortgage interest rate in France fluctuated around 1%. However, since the interest rate was aligned with the rest of Europe, the mortgage interest rate in France is now between 4 and 5%. For many French people, this means a quadrupling of the mortgage costs, which means purchasing plans for a home are being put on the back burner. Update: The interest rate is falling in Europe, so there will be more local market movement next year.
New construction is more exclusive due to RE2020 building standards and high interest rates
If mortgage rates do not fall, a large target group will be forced to rent a home in the coming years. While new construction is only becoming more interesting for investors: the rental market is growing and with it the profit on investment.
The local market has shrunk because French buyers can only take out an expensive mortgage. As a result, sales of new construction to the local population are stagnating, and new projects are being postponed in the planning. Is there a crisis in new construction? For many French real estate agents, yes, after all, they are dependent on sales to the local market. There is no panic among project developers, but there is an adjustment to reality. The project developers are shifting their marketing to buyers outside France who are either used to 4% interest on the mortgage or have the money in the bank.
Cost price RE2020
In the meantime, the price of new construction is rising and that is special in a shrinking market. The reason for this can be found in the cost price of building materials. By committing to the strict building standard RE2020, every project developer is obliged to spend extra money on insulation in the field of acoustics and energy efficiency. Expensive systems such as a heat pump in combination with home automation do provide lower energy consumption and the coveted energy label A, but also drive up the price of new construction.
So, are you looking for more choice in the supply, a solid rental investment, or both? Then now is a good time to invest in new construction, especially now that there is less local competition.
This article appeared earlier this year in Dutch magazine Cote & Provence.
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