Rental Investing: A Journey Full of Pitfalls
Rental property investment faces numerous challenges, including the end of the Pinel program and stricter tax rules. Landlords must navigate a constantly changing environment, with uncertainty about future subsidies and imminent energy-efficiency renovation requirements.
First, the rent control mechanism, which is in place in high-demand areas and makes the investment less and less profitable. But above all, the Pinel program—one of the strongest incentives for purchasing a new apartment to rent out—is in its final days.
Introduced ten years ago, the Pinel rental investment incentive program—which has attracted many investors and tenants—will expire on December 31, 2024. Unlike in the past, when a new tax break would replace the old one in response to political changes, it will now be necessary to cut the cord.
The Pinel program is considered not only costly—at a time when public finances are stretched thin—but, above all, flawed. Before its scheduled end, this tax exemption program has seen its benefits gradually eroded. As a result, the share of investors in new home sales is plummeting. It fell from 53.5% in 2017 to 31.3% in early September, according to the Federation of Real Estate Developers.
An Uncertain Future for Landlords Under the “
” Program: While its president, Pascal Boulanger, advocates for extending the program rather than eliminating it, for many, the die is cast. Before the dissolution, the executive branch wanted to do away with the Pinel program. It was now fully committed to supporting institutional investment in intermediate rental housing (LLI), while directing individual savings toward real estate investment trusts dedicated to LLI. Barring any surprises, in the government’s constrained 2025 budget, subsidies for private landlords are likely to be frozen. The Pinel scheme will likely be the last of its kind, but the idea of extending LLI to individuals could resurface. It’s not certain that landlords will benefit from this.
Stricter Rules
Another thorn in the side of private rental investment is the severe cutback on rental income taxes that is on the horizon. The tax benefits enjoyed by owners of short-term, furnished tourist rentals—such as Airbnb—are in the crosshairs. To rebalance the rental market, the underlying philosophy is to align the tax regimes for unfurnished and furnished rentals toward the lowest tax rate.
The fate of taxation on rental income from furnished properties has not yet been decided. But it is likely that the spirit of the bipartisan Le Meur law—the so-called “anti-Airbnb” law, named after Annaïg Le Meur, the Renaissance lawmaker from Finistère who sponsored it—will resurface. Lawmakers could bring back stricter rules not only for furnished tourist rentals but also for the entire rental tax system. Annaïg Le Meur herself told the French Association of Rental Real Estate (AFIL) that her proposed bill does not need to be rewritten from scratch. It would simply need to be put to a vote again in the National Assembly.
Radical Proposals
The developments in the area of rental income taxation are enough to discourage investors. Radical proposals, such as eliminating the deductibility of depreciation for non-professional furnished rental property owners (LMNP) under the actual income tax regime, are also at the heart of a report on a comprehensive reform of rental taxation. Led by the same member of parliament, the report was submitted to Gabriel Attal before the summer. The representative from Finistère has, however, assured that a transitional measure would be put in place to mitigate the adverse effects of the measure.
Furthermore, this rule would not apply to furnished rentals under a “mobility lease”—which have a term of 1 to 9 months—for students, employees on temporary assignments, or those in vocational training. Investments in managed residential complexes—such as those for students or seniors—would also be exempt.
The Sword of Damocles Hanging Over Energy-Efficiency Renovation Requirements
Be aware, too, of yet another sword of Damocles. The countdown to the energy renovation requirements for energy-inefficient homes has begun. There are now less than four months left before homes rated “G” on the Energy Performance Certificate (EPC) will be deemed unfit for habitation and banned from being rented out. Although a relaxation of this mandatory timeline was once discussed, it remains hypothetical unless a consensus is reached in Parliament.
Rental property investment faces numerous challenges, including the end of the Pinel program and stricter tax rules. Landlords must navigate a constantly changing environment, with uncertainty about future subsidies and imminent energy-efficiency renovation requirements.
