Housing in France is slipping away from foreigners
Currently, the French government is actively discussing possible changes to the country's tax legislation. In particular, it plans to increase the rental income tax from 20% to 35.5% and the capital gains tax from 19% to 34.5%. At the same time, for Russians even now the capital gains tax is 31.3%. This rate applies to states that are not part of the EU but have a tax agreement with France. Therefore, for Russians this tax will increase by 3%.
A significant tax increase could strongly hit the country's investment attractiveness. 'The tax increase in France will naturally have a negative impact on the local real estate market. Currently, the main buyers of real estate in this country are the British and residents of northern countries. Many of my acquaintances have already put their houses up for sale. Potential buyers will rent housing instead of buying. With tax increases, buying real estate, considering the costs of maintaining it (utility bills, gardener fees, cleaning, etc.), will become very expensive. However, this only concerns the middle class; for wealthy buyers, the tax increase will go unnoticed,' believes Ekaterina Tein, partner of the British company Chesterton.
According to Elena Milishenkova, an expert in foreign real estate at the portal Tranio.Ru, 'if the law is still adopted, the number of speculative transactions may decrease, that is, those transactions that are made with the aim of reselling at a higher price.'
Those who buy real estate for their own vacation, not for profit, will not notice the tax increase. 'Russian buyers acquire real estate on the French Riviera primarily for their own residence; other locations are usually considered for investment. Therefore, the tax increase will not strongly affect demand: those who wanted to live in the south of France will in any case buy housing there,' explains Elena Yurgeneva, director of the elite residential real estate department at Knight Frank (Moscow).
If buyers refuse to invest in French real estate, prices may fall. 'Real estate prices will go down. The number of potential buyers will decrease, while the volume of properties on offer will, on the contrary, increase. In this case, with the adoption of such amendments, one could demand a 10-15% discount,' believes Ekaterina Tein.
Against the backdrop of falling prices and due to the fact that for Russians the tax increase will not be so significant, their share among buyers in France may increase somewhat. As a result, if buyers are scared off by high taxes, they will switch either to renting in that country or will look for homes in neighboring countries with a more attractive tax regime. According to Elena Yurgeneva, buyer interest may shift to the coasts of Spain and Italy – the Italian Riviera, Tuscany. True, Spain and Italy also adjusted their tax policies for foreigners in 2012. For example, in Spain, the capital gains tax has been reduced until the end of the year – now when reselling a property, it is enough to pay half of the tax rate.
As told to Gazeta.Ru by Olga Ovchinnikova, an expert at the portal Tranio.ru, in general, the capital gains tax in Spain is a maximum of 19% of the difference between the sale and purchase price. This tax is not paid if a foreign citizen permanently resides in Spain and intends to invest the entire amount from the sale into a new property. In addition, a non-resident pays a real estate purchase tax of 8% of its value, and an annual property tax of 3% of the cadastral value of the property.
However, according to Ekaterina Tein, Italy will benefit more from the tax increase in France. 'Perhaps buyers will pay more attention to real estate properties in Italy. Usually, buyers of housing in France consider this country as an alternative. Spain is not a competitor to France. There are a lot of problems there – 1 million properties are vacant and no one wants to buy them. Moreover, France is more attractive in terms of healthcare, infrastructure, etc.,' believes Ekaterina Tein.
In Italy, on the contrary, from October 1, 2012, VAT on the purchase of real estate from developers will be increased from 10% to 12%. In Italy, property ownership is subject to an annual tax at a rate of 0.4% to 0.7%, set by municipalities.
There are other options with more lenient tax legislation. For example, in Latvia, which is popular among Russians due to the possibility of obtaining a residence permit by purchasing real estate for €143,000, the capital gains tax is 15% if held for less than 5 years. As told by Rolands Petersons, chairman of the board of the Latvian bank Rigensis Bank AG, in Latvia at the beginning of 2011 all property taxes were doubled.
For example, previously the tax on a four-room apartment in Riga was up to 0.2% of its value. After the tax rate increase, in Jurmala for instance, they reach 0.6-0.8%. In general, when purchasing a real estate property, a state duty of 2% of the purchase price is paid, rental income tax is 10%, and value added tax is 21%.
Yulia POGORELOVA.
