The Paris property market has come to a rather sudden drop as the rush to sell before the increase in capital gains tax has left an overhang of unsold properties on the market, which now looks like oversupply against the reduced demand that is also being experienced.
Properties purchased before February 1st 2012 are fully exempt of capital gains tax when held for 15 years or more, with exemption coming in increasing increments between 6 and 14 years of ownership. This was a good system for investors, especially those investing in French leaseback properties, which often come with rental guarantees lasting around 15 years. Under the new rules properties must be held for at least 30 years in order to achieve full exemption from capital gains tax, although the incrementally increasing exemption has been retained as follows:
- Years 1 to 5 – no relief
- Years 6 to 17 – 2 percent relief per annum
- Years 18 to 24 – 4 percent relief per annum
- Years 25 to 30 – 8 percent relief per annum
Both buyers and sellers rushed to beat the deadline; sellers sold more and increased supply, and buyers capitalised on the increased stock as well as the time sensitivity and low mortgage rates.
Ironically, the increased supply led to a 3% reduction in prices in the run up to the deadline. Now, according to experts, the market has returned to normality, which is to say that prime properties are selling well, while properties on the normal market are not doing so well, especially with the supply increased caused by the CGT increase.
"This is resulting in a distinct two tier market re-emerging. Buyers are still dictating the market and once a property is at the right price it does sell," said director of Lonres French operation, Laurent Lakatos.
- Tuesday 12 June 2012