A second home is a dream … and many French people have already made this dream come true. Is it really worth it?
In our October 2020 note, we wondered whether the French were really going to leave the cities to go green, pushed by confinements and the trivialization of teleworking. Finally, the desire for a house in the country with a swimming pool turned into a search for a terrace or balcony on the urban outskirts.
But there is an alternative to permanent installation outside large urban centers …
This is the temporary installation. We obviously want to talk about the second home that can be occupied during each period of school holidays and during confinements, the recurrence of which is to be feared. But also on weekends.
A 20% increase in 2020
Being able to go to your second home on weekends seems to be an essential condition for deciding to buy. This is why the market is developing strongly within a radius of 150 km, or 1 hour 30 minutes maximum transport, around large cities.
The Parisians turn to Normandy or the Yonne; the Lyonnais towards Savoy; the Toulousains towards the Gers; the Bordelais towards the Landes; the Marseillais towards the Alpilles.
As a general rule, buyers look for a property that is easily accessible – proximity to a train station is a plus – and not too isolated – the vicinity of a village or small town where it is preferable to be able to shop.
A Parisian agency saw its sales in this segment grow by 20% in 2020. On the Century 21 network website, thehe searches for “second homes” increased by 57% after the first confinement compared to the same period in 2019.
In Brittany, real estate professionals have noted a 45% increase in the number of consultations for their offers, a quarter of which are for second homes. This last figure confirms the survey of the Orpi real estate network, carried out last summer, which reveals that one in four respondents said they were considering buying a second home.
A project that does not appeal to people in their fifties preparing for retirement and welcoming their grandchildren for the holidays, since a third of the people who are interested are under 40 and 11% under 30.
Have these new desires of the French caused real estate prices to rise? A priori, no. The Best Agents Real Estate Price Index-The echoes shows an increase of 2% in 2020 with, of course, large disparities: + 2.6% in the ten largest cities and only + 0.69% in rural areas. In these, prices have risen only 2.6% over the past five years and have even fallen 8.7% in ten years.
The prices are therefore still affordable in most French countryside for those who decide to get started. This is probably less true on the coast (where 37% of second homes are located) and in the mountains (28%).
In some departments, the proportion of secondary stock sometimes reaches 45% (Hautes-Alpes). It is 35% to 40% in Corsica, 37% in Savoie, but also, more surprisingly, 32% in Lozère. Proportions that can push prices upwards in these regions.
A checkered market
The second home market experiences regular ups and downs, depending on the economic situation. It was thus very buoyant in the mid-1990s, to fall from 2008 and regain color from 2012.
In 2020, INSEE calculated that the secondary housing stock increased by 60,000 additional housing units, slightly more than in previous years (+ 50,000 per year on average since 2012).
Our country now has 3.6 million second homes, a record that places it at the top of the European ranking with Spain. To put it another way, one in ten homes in France is not a main residence.
This growth was obviously driven by demography, the French population steadily growing. However, in relation to the number of inhabitants, the number of second homes is also increasing: in 1983, there were 4.3 second homes per 100 inhabitants; in 2020, the ratio is 5.5.
A source of significant costs …
The French who plan to acquire a second home estimate that they can devote a budget of € 200,000 to it, which roughly corresponds to the amount of the average real estate transaction in France. A realistic price according to the broker Pretto, who estimates the average price of a second home at 202,000 €.
The cost of a second home doesn’t end with the purchase, however. Of course, before signing, you will have to watch out for any hidden defects that could very quickly increase the bill (roofing, heating and plumbing, electricity, etc.), and take advice from professionals.
Maintenance costs can also be high depending on the size of the house, its insulation and where it is located.
Being in front of the sea is undoubtedly pleasant, but we must not lose sight of the fact that the rain, the storms and the salt can require regular work to avoid the degradation of its property. Likewise, building a swimming pool in the garden will delight young and old, but water, electricity and cleaning products have a cost that is not always well appreciated at the outset.
Add to this the maintenance of the garden, the alarm system, or even the security if the house is isolated, any co-ownership charges, the various and varied subscriptions that must be doubled (electricity, gas, water, internet) , minor maintenance and repair work, etc.
Do-it-yourself and gardening enthusiasts can sometimes have a blast, and save a lot of money by not calling on artisans. But for some, all this is akin to chores, encroaching on their rest time, which they will then prefer to delegate – and therefore pay – to professionals.
To these costs, do not forget to add the costs of travel between the main residence and the secondary. In short, the charges are high if we relate them to the actual use of the asset.
This is undoubtedly why banks look at it two or three times before financing the purchase of a second home, which they often consider as a luxury product. The recommendations of the High Financial Stability Council (HCSF) on limiting debt ratios do not help.
The “financing index” of second homes, published by the broker Pretto, was 51 points in December 2020 while it had fallen to 37 points in May. This means that at the end of last year, almost half of the plans to buy a second home were refused by the banks. By way of comparison, at the same time, the “financing index” for main residences was 77.
… Without forgetting the taxes
When it comes to real estate, taxes are numerous in France. The second home is subject to the property tax, as well as the household waste removal tax (TEOM), the tax for the management of aquatic environments and the prevention of floods (GEMAPI) if it is implemented, the possible special equipment tax, to the sweeping tax if the municipality has established one.
Let us not forget the development tax, often called the “garden hut” tax, which applies to all construction, reconstruction and expansion operations which require an urban planning authorization. In addition to garden sheds, it applies to verandas, swimming pools, garages.
The second home is not exempt from housing tax, and will even remain, in the long term, the only real estate that will be subject to it (the tax becoming the THRS, housing tax on second homes). Today, some municipalities even have the authorization to apply an increase of between 5% and 60% of the housing tax contribution. It is likely that this increase will be incorporated into the THRS when the reform is fully effective in 2023.
In general, owners of secondary residences do not benefit from the exemptions and allowances that may apply to the main residence (income, dependent children, handicap, invalidity). They also cannot benefit from tax credits for energy renovation work. On the other hand, energy bonuses are accessible.
In the event of a sale, capital gains are taxed (19% for income tax, and 17.2% for social security contributions). There is even a surcharge when the capital gain is greater than € 50,000. However, the taxation of capital gains benefits from reductions depending on the length of time the property is held. After 22 years, you will be exempt from income tax and social security contributions after 30 years of detention.
The purchase of a second home can also make you fall into the very select club of those subject to property tax (IFI).
Get some income from it?
With such charges and taxes, we understand that 40% of owners of second homes practice seasonal rental. Half of these even rent their property for more than ten weeks a year, according to an Ifop survey for FNAIM. This also means that 60% of owners never rent out their second home, preferring to remain the only users.
Renting out your property increases the borrowing capacity, as banks are sensitive to the income thus generated. Because, if the good is of quality and that it benefits from an ideal location, the seasonal hiring can pay the expenses and the maintenance. However, it should not be forgotten that the most popular and lucrative rental periods are also often when the owner wants to enjoy his home.
Making your residence a furnished tourist accommodation requires a few steps. First of all, if it is located in a condominium, it will be a question of checking that the co-ownership regulations do not prohibit it. Then, it will be necessary to declare the furnished apartment in town hall or, in the largest municipalities, to obtain an authorization for change of use. Then, you will have to obtain a SIRET number.
The owner then benefits from the tax regime of non-professional lessor and the income he derives from the rental is subject to the progressive scale of income tax. Social security contributions are levied if annual revenue exceeds € 23,000.
In addition, the owner may have to pay the business property contribution (CFE), as well as collect the tourist tax from the holidaymaker to pay it back to the municipality.
The purchase of a second home, the reader will have understood, should not be done on a whim or on a crush. On the contrary, it is important to weigh the pros and cons before deciding even if having a place where the whole family can meet and experience unforgettable moments is ultimately priceless.
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