Prices in Paris are Still Dropping/How to Evaluate Inheritance Taxes

PRICES ARE DROPPING

According to the latest report by the INSEE* published on Thursday, February 29, there is a significant shift underway in the real estate market, with prices no longer adjusting but instead experiencing a notable decline. This shift, albeit delayed, is attributed to a decrease in the annual volume of transactions. Their data reveals a substantial 26% collapse in transaction volumes between 2021 and 2023 in France.

This trend extends beyond Paris and the Ile-de-France region—now evident nationwide. The Paris region, which initially saw a decline in real estate prices since the fall of 2022, now reflects the broader trend seen across France. The report indicates a 4% year-over-year decrease in existing property prices by the end of 2023, a sharp contrast to the modest 0.5% rise observed six months earlier.

The decline in transaction volumes, beginning over two years ago, has played a crucial role in this shift. Between 2021 and 2023, the annual volume of transactions plummeted by 26% in France, from nearly 1.2 million to 870,000 sales. Elodie Frémont, the spokesperson for the Chambre des Notaires du Grand Paris, highlighted the impact of household solvency constraints and a prevailing wait-and-see attitude among potential buyers. The rapid increase in interest rates has exacerbated the situation, making borrowing significantly more challenging for households, with banks adopting a cautious approach.

While the nationwide decline in prices is evident, its intensity varies from region to region. In Paris, the drop is particularly pronounced, with square meter prices falling by almost 7% in one year, standing at €9,770 in the fourth quarter of 2023.

Now is the time to buy property in Paris!

Download the PDF report (in French).

* The National Institute of Statistics and Economic Studies (French: Institut national de la statistique et des études économiques), abbreviated INSEE or Insee, is the national statistics bureau of France. It collects and publishes information about the French economy and people and carries out the periodic national census. Headquartered in Montrouge, a commune in the southern Parisian suburbs, it is the French branch of Eurostat. The INSEE was created in 1946 as a successor to the Vichy regime’s National Statistics Service (SNS). It works in close cooperation with the Institut national d’études démographiques (INED). (Source: Wikipedia.org)

The INSEE building in Montrouge

ASSET VALUATION IN INHERITANCE DECLARATIONS

Valuing assets in an inheritance declaration is crucial, and it’s based on their market value at the time of death. Here’s how various assets are evaluated:

Usufruct Property: Property held in usufruct or bare ownership is valued by considering the administrative scale of usufruct. The tax value of bare ownership is calculated by deduction. For usufruct fixed for a specific period, its tax value is set at 23% of the full ownership per period of ten years, within the limit of the tax value of the life usufruct.

Real Estate: The value of buildings subject to inheritance tax is determined based on various property characteristics and the local market’s state. Different methods like valuation by comparison or yield are utilized.

Main Residence: The principal residence of the deceased receives a 20% reduction on its market value if it continues to be used as the primary residence by the surviving spouse, minor, disabled, or protected children. This reduction doesn’t apply to gift taxes.

Jointly Owned Building: Real estate jointly owned is estimated at its market value in the inheritance declaration. Discounts ranging from 20% to 40% are allowed, depending on factors like property nature and location.

Furniture: Furnishings are valued based on the net price obtained from a public auction within two years of death. If there’s no auction, a notarized inventory within five years or another estimated act determines their value. Assets without these evaluations are subject to a declaration from the heirs, not less than 5% of the gross value of all other assets.

Jewelry and Works of Art: Their valuation cannot be lower than the value declared in an insurance contract on the day of death. They’re subject to separate valuation, distinguishing between furniture intended for apartment use and collections.

Business and Securities Portfolio: Goodwill and customer bases are evaluated based on activity and turnover. Listed values are recorded at the average price on the death day or the average of the last thirty prices. Unlisted values are estimated using accepted methods like yield or mathematical value.

Listed values are documented either based on the average price on the day of death or by averaging the last thirty prices. Unlisted values are estimated using approved methods by the Administration, such as yield or mathematical calculations. These valuation methods ensure a fair and accurate distribution of assets in inheritance declarations.

Complicated? Of course it is! This is France!

A bientôt,