Review of the French real estate year 2021 and new elements for 2022

19/01/2022

This is the time to take stock of the past year after the holidays and the family reunion. Everyone looks back on the past year and examines it to understand what has been achieved and what obstacles have been encountered.

If we were to assess the year 2021 from the point of view of the luxury real estate sector, we can say that it is a dynamic and even exceptional year according to the experts' analyses. Paris remains at the top of the list of the top 5 destinations with the best potential for luxury real estate. It is followed by Geneva, London, New York and Quebec. As everywhere else in the world in the Provence Cote d’Azur region of France, the COVID effect has been the trigger: sales of villas of more than €50milions have been signed and all have a green space between 3000 and 7000 m2. The exterior remains the determining factor in property purchases. Other points of attention include proximity to an airport for quick access to the business, and access to the sea. Do you know what room is added most in villas today? - The gym. The closure of gyms and remote working has left their mark.

There are those who make new investments to impress partners, future clients. Building a professional network rather than lounging with the family - is another current trend. Among the very sophisticated clientele, the most difficult to satisfy are artists and sportsmen and women, while business leaders remain sober.
Another attraction of luxury real estate is rental investment. It is a good way to secure their wealth, and even to make it grow both through the rents received and through the increase in value of their assets over time, while enjoying their pied-à-terre when it is not rented. As for all real estate investments it is important to take advice on the optimal structuring for property that is rented-out.

What changes after 1 January 2022 in France?

Since January 1, 2022 some new legislative changes have come into effect in France and we have made a brief summary of those that may be useful to you (related to real estate).

1. The real estate loans .
There are two major changes to loan terms that may be offered (depending on the situation of the borrower)

The duration of the loan is limited to 25 years (27 years in the case of an investment in a new build).
The maximum debt ratio is limited to 35% (including insurance)
The lender has a 20% margin to grant credit for more than 25 years at a rate higher than 35% of indebtedness, but it will have to justify it in a written policy. These changes do not concern bridging loans, renegotiation of credits, early repayment or consolidation of credits.

2. The surety .
The definition of rental surety changes from 1 January, 2022: from now on "the surety is the contract by which a surety obliges himself towards the creditor to pay the debtor's debt in the event of default by the latter". This contract can be signed electronically from 1 January, 2022. The objective of this amendment is to avoid unpaid rents. The deposit will cover (in case of non-payment) not only the rent but also the utilities and the repair works

3. Income tax:
The income tax scale is increased by 1.4% due to the increase in consumer prices. Income received in 2021 will be taxed according to the following scheme.

Ranges	Tax rates to be applied
Up to €10,225	0%
from €10,226 to €26,070	11%
From €26,071 to €74,545	30%
From €74,546 to €160,336	41%
More than €160,337	45%

Attention: Unlike the income tax, IFI thresholds are not revalued and keeps the same applicable rates

4. Local taxes :

The housing tax: before its total abolition in 2023, the housing tax will be reduced for the last time in 2022: those who are subject to the housing tax on their principal residence will benefit from a 65% reduction in their local tax in 2022. The text clearly states that "Households that have not yet benefited from the abolition of their housing tax can claim an exemption of 65% of this tax on their main residence regardless of their income.

Attention:If you have a second home you are not affected by the abolition of this tax. To compensate for the shortfall, the French state transferred the departmental share of the property tax to the municipalities. But despite this, some of them have increased their property tax to have the necessary resources to "ensure the development of public facilities, the economy, bicycle facilities, etc.". At the France urbaine public finance meetings in Paris last September, local government officials also discussed the introduction of a national tax or climate tax to be paid back to the communities.

Some municipalities find other solutions such as increasing the property tax or the construction tax.

Did you know that the tax on a garden shed has jumped by 7%? It is another way to top up the municipal coffers. It has existed since 2012 and has seen a record increase.
Ile-de-France 929€/m2 instead of 870€/m2
the other municipalities of France 820€/m2 instead of 767€/m2

b. Property tax: INSEE forecasts a 3.4% increase in property tax due to the revaluation of cadastral rental values

5. The dematerialization of town planning authorizations:
As part of the ecological transition, the building permit application can be filed online. Most municipalities are equipped to receive and process these requests and an online simulator allows you to know the list of documents to send for each type of work.

6. Following the Brexit:
British residents and workers in France must have an up-to-date residence permit as of January 1, 2022.