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As Paris Imposes A Massive Tax Hike On Second Homes, Other European Cities Gain In Popularity

When your second home taxes jump to 60 percent, as they have done in Paris, you have some decisions to make.

By Jeff Vasishta February 13, 2017

Ever dreamed of buying second home in Paris, the City of Lights? So, apparently, have a lot of other people. Now it will cost them more than just the price of the property and a romantic dinner or two.

Whether for a scenic getaway—or simply as an investment in one of the most famous capitals in the world—Paris has lured lured both French and foreigners alike to shell out big bucks for apartments along its historic streets. The problem is it has left the city with a deluge of vacant homes. In an effort to curb this, Paris has announced that will increase the tax it levies on second homes from 20 percent to 60 percent. Even for the wealthiest of speculators, that’s got to hurt.

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The tax is applied to homes that are mostly vacant and assessed at the rentable value of the property. The goal is to get investors and part-time Parisians to sell their properties or rent them out. According to LeMonde, the move will alleviate the pressure on rented housing.

“In a city as dense as Paris, where it is very difficult to build, controlling the occupancy of housing is strategic,” Paris deputy mayor Ian Brossat told Le Monde. “Taxing second homes further will encourage their owners to sell or lease them year-round, which will increase the rental supply. Our objective is that these apartments benefit primarily the Parisians.”

So, Paris for Parisians seems to rallying cry. However, there is a loophole. Rent out an apartment for most of the year to Airbnb tenants, and the 60 percent vacant property tax is avoided. So, amendment: Paris for Parisians —unless they are Airbnb customers.

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The increased empty tax revenue by the new law is expected to triple the city’s coffers from $21.5 million a year to $68 million. Speculators will be forced to ask themselves: Should I stay or should I go? Much may depend on the calculating how much of the taxes they can write off on their own taxes. In the U.S., all investment property expenses, including taxes, can be deducted. Paris has always been a strong market, second only to London in recent years, for attracting foreign investors.

However, with the Brexit vote and the generally poor shape of the economy in France, that is changing. Germany is now the safest bet for investors to park their cash, according to ULI (Urban Land Institute). Owners emotionally attached to Paris, unwilling to consider Berlin, Hamburg, or Frankfurt, and not open to Airbnb tenants will be forced to make a calculation based on taxable expenses and equity appreciation versus the actual cost of paying 60 percent in property taxes.

Of course, there is another option. They could actually live there.

 

Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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