With the Exodus of the Rich French, Could Come the Immigration of the Foreign Investor

Hollande takes aim – photo courtesy of APOh la la! The media is having a field-day with Hollande’s proposed tax reforms, particularly his ‘biggie’ — the 75% tax on earnings over 1 million years a year.

This week, local Paris journalist, Liz Alderman, reported in the New York Times a very comprehensive view on the proposed tax scheme outlining its assets and liabilities for France.

What fascinated me most is how the reform will actually make a tiny dent in reducing the deficit with less than 30,000 millionaires in a country of 65 million, but what a huge impact the reform has on chasing out executives, wealthy people, start-up and multi-national companies as well as stifling the hiring of worthy employees.

The Huffington Post followed on Liz’s heels with an article that further illustrates how easy it is to live anywhere in the world with our offices becoming more and more portable thanks to the Internet and sophisticated communications.

I loved Will Smith’s interview on French TV where when realizing the tax was 75% and not 35% as he first understood, without a second to think blurted out “God bless America.”

All this speculation leads me to thi
nk about what it will mean for real estate in France, should his proposed reform actually take place and I can tell you what the crystal ball sees:

First, I am already witnessing property put on the market to sell so that investments can be made in other countries where taxes are lower. European cities like Berlin and Barcelona are getting more attractive all the time for investors. If more property comes on the market, the big expensive properties — since the wealthy are the ones making the exodus, the values of these properties will likely come down. This means luxury Paris apartments and manoirs and châteaux in the countryside may be a dime a dozen at bargain prices. That also means that the State will be assessing less in transfer taxes and less in capital gains taxes.

These properties may also be converted into fractional ownership shares, so that the seller will gain more, not less, and still maintain a percentage of usage. In fact, we are negotiating now with one such owner of a large and beautiful château near Tours to do just this — it’s a way of maintaining a ‘foot hold’ in their home country without the burden of too many assets that can be taxed.

Other properties may come on the rental market (if the owners prefer not to sell so as not to pay the capital gains tax), with proceeds reported offshore in their owners’ newly adopted countries, further reducing the country’s tax base.

And if there are fewer wealthy French in France, then the buyers of such properties will largely be foreign, that is unless the new reforms make it too unpalatable for foreigners, too (such as with the proposed social security tax to be imposed on foreign owners). I doubt François Hollande had it in mind that France would become a nation of poor French and wealthy foreigners, but this is possible when considering the proposed reforms and the bad international publicity surrounding his socialist-based ideas.

Like in most situations, when ‘one door closes, another one opens’ — and so it is this I see in the proverbial crystal ball. If property prices come down, then there is an opportunity for investment. Lending banks that are losing national clients will be seeking foreign buyers and making more attractive offers. I also believe that foreigners have an advantage, not only because of their ability to operate offshore in many situations, but because they come with ideas that are unique to their culture, and which might prove to be successful.

I have seen this time and time again with Americans living in France who were taught at an early age how to think ‘outside the box,’ outperforming their French counterparts who are still uncomfortable dealing with money. No doubt, the wealthy will be seeking ‘greenback’ pastures, but Paris will likely remain the most visited city in the world, even if its residents are living elsewhere.

All this could mean much more opportunity for all of ‘us.’

If you would like to hear the French point of view on this (in French of course), a conference/debate will take place Thursday, September 6th at 6 p.m. at the Chambre de Notaire de Paris titled “Fiscalité: les nouveautés de la rentrée” at the Chambre des Notaires de Paris,
12, avenue Victoria, 75001 Paris.

A bientôt,

Adrian Leeds
Editor, French Property Insider

Email: [email protected]

P.S. Paris Weekender blogger Abby Gordon is a happy new apartment-owner and the subject of an upcoming House Hunters International! She just published her interview of me talking about life, business and French real estate, so don’t miss it…and be sure to subscribe to her very informative and fun blog! See Interview with Adrian Leeds