The Rental Market in France

The rental market in France has experienced significant fluctuations over the past three years, with a major downswing trend that appears to have no immediate ending in sight. Despite previous austerity measures and their subsequent easing by the Francois Hollande government, the 2012 figures reflect a continuing decline.

Rental Market Trends

The rental market is invariably connected to the housing market from which it derives its strength. Over the past 15 years, the housing market has seen significant fluctuations.

A housing boon occurred between 1997 and 2007 with prices surging to an astounding 150% (112.5% allowing for inflation), but it began to lose momentum in 2008. House prices dropped by 3.82% (-5.48 with inflation) and by a further 4.07% or (-4.41% adjusting for inflation) a year after in 2009. The following year in 2010, the market rallied with prices jumping by 7.5% (5.82%) but in 2011, the surge eased and prices rose by only 3.66% (1.19%), attributed to the Eurozone debt crisis.

Despite low prices, demand also declined in 2013 with house sales in Paris plunging by 44%. House sales at other main cities like Petite Couronne (-28%), Grande Couronne (-25%) and Ile-de-France (-31%), all witnessed major downturns in house sales. The number of built homes sold in the country fell by (11.9%) y-o-y to 709,000 units and construction of new homes also declined by 7.3% to 495,496 units in 2012. The telltale signs are that the French housing market is expected to remain weak beyond 2013.

Metropolitan France

In this part of France, house prices dropped by 1.63% in 2012 representing a y-o-y 3rd quarter decline. With inflation prices actually fell by -3.12% in the same period. In the 4th quarter, house prices declined by 1.27% (-1.51%) from the previous quarter.

For Paris, prices declined by 0.96% (-2.46%) y-o-y to an average of €8,270 per sq. meter in 2012. In the Petite Couronne area, apartment price fell by 0.5% y-o-y to a low €4.420 per sq. meter also in 2012. Apartment prices for the Grande Couronne remained an unchanged average of €3,130 per sq. meter in 2012.

Rental Yields

While commodity prices have escalated, rents have remained low, a contradiction in itself given the low price of floor space. Nevertheless, rent earnings have not copied commodity price increases. In central Paris, rental yields have remained around 3.5%, which is a typical figure in the area irrespective of apartment size.

Taxes and costs haven’t helped the situation one bit with tax on rental income for foreigners at 10.00% for an income of €1,500 per month. Capital gain tax also cuts into the pie at a high 19% for residents to an even higher tax of 33.33% for foreigners.

The global income of residents in France is taxed progressively at rates between 5.5% and 41%.