Paris real estate taxes among cheapest in the world for international investors
A new study surveying prime real estate in 15 major international cities reveals that Paris offers one of the most attractive tax regimes for foreign investors.
British estate agent Knight Frank recently published their Global Tax Report in partnership with Ernst & Young (EY), assessing the impact of tax and property costs for foreign investors purchasing real estate in 15 key cities around the world.
In order to compare general costs and taxation when it comes to purchasing, holding and selling property in each city, the report assumes that the property is rented out for a period of five years after which it is sold. The study focuses exclusively on the tax situation for non-resident foreign investors.
With this criteria in mind, Paris is the third most advantageous city among the 15 surveyed in terms of property tax — after Monaco and Dubai — for a property worth 1 million US dollars. For a pricier property — costing 10 million US dollars — Paris comes in fifth place for cheapest tax, losing two places to Mumbai and Shanghai.
According to Carolyn Steppler, private client tax services partner at EY, “when purchasing property as an investment, tax is not necessarily the first concern, but it is important because it is often the after-tax return that measures the success of the investment.”
When calculating tax as a percentage of the selling price at the end of the fifth year of ownership, taxation in Paris amounts to 7% for a property worth 1 million US dollars. Following closely are Mumbai and London at 7.5 and 9.7% respectively. As a point of comparison, this same tax equals 15.5% in New York, 16% in Berlin and 18% in Sydney. The two cities where property tax is the highest out of the 15 cities surveyed are Hong Kong (22.4%) and Sao Paulo (31.5%).
For a property worth 10 million US dollars, tax in Paris equals 12.8%. Comparatively, it jumps to 19.2% in New York, 20.7% in London and 26% in Sydney, while remaining comparable to rates for 1 million dollar properties in most other cities.
Nonetheless, Paris does make up for lower taxes with higher property costs. These include acquisition costs, housing management fees and agency fees among others. These expenses way in at 15.3% in the French capital (for purchases of 1 million dollars), compared to 12.1% in Sydney, 11.5% in New York and 7.8% in London. For purchases equaling 10 million dollars property costs are more modest in Paris, totaling 7.2%, with Geneva ranking at the head of the list with 13.2%. In Sydney, New York and London they amount to 10.7, 8.4 and 5.4% respectively.
According to the report’s authors, “as the rate of price growth slows in many global residential markets, transaction costs and taxation are becoming increasingly important considerations for investors.”
The report examines each city’s detailed tax regimes. In the case of Paris, this includes the fees for registering the property at its acquisition, wealth tax and capital gains tax. According to the study, the “anticipation of more benign taxes has helped foster a positive mood among international buyers keen to capitalize on lower property prices” in the French capital. Alongside this, “the weaker euro and record low interest rates have combined to fuel a rebound in the number of sales across traditional hotspots in Paris.”
Researchers at Knight Frank add that “with less than two years to go until the next general election, President Hollande appears to be following a more moderate path which could see France emerge once more as the lifestyle and investment destination of choice.”
Finally, Paris and France in general appear to be an appealing destination for foreign real estate investors: “As a result of relatively low acquisition costs and a taper relief on capital gains tax, France is looking increasingly attractive.”
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