If you are investing in property in France in 2023, Where should you buy? Where can you pick up property in France at reasonable prices? Which areas of France offer the best return on investment? Where can you expect strong capital growth? Where are the best places to live in France? The answer to all these questions is the South of France.

Why I should buy investment property in France

I believe that there are 4 very good reasons why you should buy an investment property in France.

Firstly, the property market has been growing steadily for the last 5 years and has shown remarkable resilience, even despite 2 Covid-19 confinements.

Secondly, the French economy is forecast to rebound strongly in 2023 with GDP growing by +4.2% , following a healthy +6.8% recovery during 2022.

Thirdly, certain areas of France have a unique double rental market, of summer holiday rentals and long winter lets. This creates rental yields higher than central London, Paris, Dublin and Amsterdam.

Finally, over the next 10 years, demand for housing, especially in the South of France is expected to grow rapidly.

1. Resilient property market in France

The property market in France has grown steadily over the last 5 years, with French house prices increasing for 20 consecutive Quarters (from Q4 2015 to Q3 2020). During 2021, house prices increased by an average of +5.9% across the whole of France. FNAIM, the trade body for Real Estate agents in France has predicted that house prices will continue to rise in 2022 (by an average of +3.5%).

In the 12 months up to May 2021, property sale transactions in France topped 1,130,000 - the first time sales have reached this level since 2000. Whilst the Covid-19 pandemic brought a dramatic pause to virtually all house sales between March to mid-May 2020, since the confinement was lifted there has been a surge in property sales.

One clear trend which has been documented in the housing statistics, is that French buyers are increasingly looking for properties in small towns (with a population around 3,500 people or less) in cheaper, rural areas away from the major cities. This reflects a continuation of the trend first observed during the 2020 lockdown when people adopted remote working more and more and escaped from the high-cost housing areas of Paris, Lyon and Toulouse.

House sales are forecast to continue at around 950,000 during 2022 (Source: Notaires.fr).

Bank lending for home loans in France has also also been relatively unaffected by the Coronavirus health crisis. Mortgage lending increased by +5.3% in the 3 months up to August 2021. In May 2021, the total amount of French housing loans rose sharply by +€7.2bn to stand at €21.1 billion in total. This growth in lending is a direct result of the historically low mortgage interest rates in France (1.05% in August 2021). The Banque de France is prediciting that mortgage rates will remain low during 2022. 

SOURCE: Banque de France household loans Q2 2020

The French property market is one of the most regulated housing markets in the World. The Loi Hoguet, controls virtually every aspect of French property transactions. Also, Capital Gains Tax in France remains high at 20% and there is a disincentive in selling property within 5 years of purchase. In addition, 85% of house loans in France are fixed rate mortgages, with only 6% of new home loans being variable rate mortgages. These factors help create a very stable property market, which is less prone to the sharp upturns and downturns of other countries.

2. Rebounding French economy

After suffering a -8.7% decline during 2020 as a result of the Coronavirus crisis, the Banque de France forecasts that the French economy is expected to grow by +4.2% in 2022 and +2.1% in 2022. In addition to this, there are many grounds for optimism about the French economy, with Bloomberg (a serial knocker of the French economy), recently commenting that France is heading for a 'Golden Decade'.

Firstly, the French government announced back in September 2020, a huge €100 billion economic stimulus package. This unprecented scale of investment, focuses on green energy solutions and environmental measures, to reduce France's level of carbon emissions. 

Secondly, Unemployment has fallen steadily during President Macron's time in office, from around 9.5% of the country's workforce in 2017 when he took over from Francois Hollande, down to 7.2% just before the pandemic hit in 2020 and now standing at just over 8.0% (unemployment rose to 9.1% during the pandemic as companies shed temporary staff and now stands at 8.1% in Q4 2021).

The French President can also point to the fact that the ratio of new hires on coveted open-ended permanent employment contracts (an essential pre-requisite in France to get better access housing and loans) compared to fixed term contracts, is up to 49% (it stood at 44% when he took office).

SOURCE: Statista.com.

Thirdly, the level of business activity in France is shaking off a decade of sluggish growth. The tax cuts introduced by Macron early on in his Presidency, have helped raise French company profit margins back to levels not seen since before the global financial crisis. As a result, company investment levels are now higher now than before the Covid-19 crisis, while Europe as a whole still hasn’t recovered. According to INSEE, the French Statistic Office, investment levels now stand at just below 25% (of gross fixed capital). There is a continued increase in the number of new companies formed each month (continuing the upward trajectory since 2017) and France is increasingly attracting Foreign investors to the country. Ernst & Young also report that France has jumped above the U.K. and Germany its global rankings for attracting new investment projects and jobs.

SOURCE: Banque de France Macroeconomic predictions Sept 2020.

These are all very dry statistical figures. So what does it actually feel like on the ground for the average person in France. Here in the South of France you can definitely see the economy rebounding, with new building projects everywhere you go and you can clearly see investment starting in infrastructure projects including upgrades to roads, major fibre broadband rollout and recent projects announced to extend to the TGV network (opening faster connections to Toulouse, Nice and Cannes).

I was also up in Paris at the end of November 2021, to watch France play New Zealand at Rugby. The restaurants were all full - in fact people were queueing out on the streets. The shops were full and not just the cheaper stores. All along the Champs Elysee there were throngs of people. The other thing I noticed was that all the historic buildings & monuments were all covered in scaffolding, as work was taking place to restore them ahead of the 2023 Rugby World Cup and the Olympics in 2024. There still weren't many foreign tourists about, but I tell you, when they start to come back in 2022 and up t the Olympics, the place will be buzzing.

One of the key factors when planning to invest in property is the state of the economy. You hope to purchase at the beginning of an economic cycle and to sell at the peak. Economic growth will normally feed through into strong capital growth in your property. This is why I am convinced that France is the obvious choice for new property investment in Europe during 2022.

3. Property in France: high rental yields

When it comes to property investment, there are a number of factors which contribute to a successful outcome. The first is to buy a French property at 'good value'. Basically, you search for property below market value (a renovation project) or buy property when the market has hit the bottom of a downturn. As we have outlined above, we believe that now is the time to consider buying a house in France. 

Secondly, when borrowing costs are cheap and rental yields are high, the conditions for property investment are favourable. The continued low level of interest rates across the Euro Zone currently makes borrowing more attractive than saving.

Thirdly, when it comes to rental yields, Property Investors traditionally look at long term residential property rentals to generate return on investment. But in France, residential rentals are problematic. The law heavily favours the tenant and market rates are not that favourable. However, there is an overlooked niche in the market which we believe opens up certain areas of France to property investment. 

In the coastal areas of France, especially in the South of France, there are two different rental markets which co-exist. There is a market for long term winter rentals for people who are house hunting or just looking for some winter sun. On average, the typical rental lease is for 6 months, between the months of October to May. Then there is the highly profitable summer holiday rentals market between June to September.

When these two rental markets are combined, even relatively modest properties can earn between 7% to 10% net rental yields. 75% of the income will come from weekly rentals in the summer and the remainder from winter rentals. 

As we have outlined above, the last 12 months in France have seen property prices increase by +5.9%. However, there are some areas where prices have been surging. House prices in Angers in Western France have grown by +7.5% during the last 12 months. This small French city was recently voted the #1 place to live in France according to the by L'Express magazine survey. In the more in-depth 2020 study by the Association Villes et Villages, Angers was placed as the 4th best city to live in France after Annecy, Bayonne and La Rochelle.

Over the last 10 years, house prices in Bordeaux have grown by an incredible +48% and the city is now the second most expensive place to live in France, after Paris. We recently ranked Bordeaux, alongside Nantes, Toulouse and Clermont Ferrand, as the best cities to work in France (see 10 best places to live in France).

Property prices are also booming in the town of Montauban, just north of Toulouse. There was staggering increase of +17.1% in the 12 months to March 2020 and average house prices grew by a further +12.1% in Q2 2020. Toulouse has also seen an increase in house prices of +14% since 2008 and prices are expected to continue this trend into 2022.

Property prices in the Southern city of Montpellier have grown by +4% during the last decade. This fast growing University town, was also also voted the second place to study in France after Rennes in Normandy.

As a general trend, property prices in Western France have shown the strongest growth over the last 12 months, especially in the fast growing cities of Rennes and Nantes. But the West of France is still playing catch up with Paris and the Southern part of France in terms of the overall value of property.

Whilst the recent increase in property prices in the South of France may appear modest, if you look at the overall long term trends, the property market here has been far more resilient to the steep rises and falls in house prices that occur in other parts of France. It also has to be said that there are two property markets in the South of France.

House prices in Cote d'Azur and Provence are virtually double the level of property rates in the Languedoc. From a property investment perspective, the Languedoc offers the best opportunities for return on investment. We discuss below some of the factors which will see property prices increase in the Languedoc over the next 10 years. But if we return briefly to the discussion of rental yields, you will soon see why buying a villa in the Languedoc makes such a sound investment.

You can still pick up 4 bedroom villa with a pool in the Languedoc region for around €330,000. With an initial investment of €80,000 and a fixed rate mortgage of €250,000, this villa can be fully paid off in 15 years with no further financial outlay.

As the table opposite shows, rental income from long winter lets and highly profitable summer rentals, will be more than enough to cover the mortgage payments. Even better, there are various tax schemes in France which allow you to off-set your mortagage payments against any tax on the rental income. You can even amortise the depreciation in the asset value of the house against your income tax and deduct your own travel expenses for personal visits to the villa. So not only do you get a great return on investment, you also can enjoy free holidays at the villa when you don't have any reservations.

After 15 years, you can either sell the property and enjoy a three-fold return on your initial capital outlay, or you can retire to your villa for 9 months of the year and enjoy an annual 'pension' income of €24,000. That doesn't sound too bad to me.

4. South of France: Europe's Retirement home

So we have already outlined why the South of France is an ideal choice based on high rental yields, but the same could also be said of Paris or Bordeaux. What I think tips the balance in favour of South France as opposed to other parts of France are demographic trends, infrastructure investment and climate. All of these factors are going to combine over the next 10 years to make the South of France the main place to invest in property in France.

In terms of demographic trends, as the population of Northern Europe continues to age, a sizeable minority are predicted to choose the South of France as either a permanent or secondary retirement home. A few years back, every village and commune in the South of France was tasked with producing a plan to increase the housing supply by 20-30%. Why? It was to meet the predicted demand from Northen Europeans moving to the South of France. The economic crisis has hit this plan a bit, but you only have to look around and you can see more Norwegians, Swedes, Dutch, British, German, Polish and Northen French people buying up houses in the South of France. 

As someone who has worked extensively in the Middle East over the last 10 years, I can also forsee many ex-Pat workers there choosing to relocate to South France. Why? Well with the decline in the Middle East economies due to the fall in oil price, many ex-Pat workers are losing their contracts to be replaced by local Arab Nationals. Will they choose to return to Northen England, Ireland or Northern France after working in 30 degree plus weather for 20 years? Will they choose to buy property in Turkey? No. Spain? Perhaps. Italy? Not so sure. The South of France retains it's special allure and that is why I think that it will continue to attract people in large numbers. The Cote d' Azur is full to bursting. But the Languedoc remains largely empty and full of houses and land to buy.

Secondly, the continued infrastructure development of the country (such as the opening of the TGV high speed line direct to Barcelona) and the break up of Paris' monopoly on international flights (which will see the expansion of regional airports, especially Toulouse, Montpellier, Marseille and Nice) - will lead to an opening up of the South West of France. In addition, there is an often overlooked investment which helps to protect the natural environment in South France. It is often said that there are only 3 things in the South of France: sun, people and wine. Basically, nobody makes money from wine. For most vineyards, the best they can hope for is one extremely profitable vintage every 10 years. The challenge for the other 9 years is not to lose money.

But what is happening in the South of France, is the emergence of greater foreign investment. Similar to what has happened in Bordeaux, we are starting to see more Asian investors looking to move into the region to support the amazing growth in the Chinese and Indian wine markets. The Languedoc wine region especially, has the potential to provide the sheer volume of good wine to meet the increasing demand in these domestic markets. I am not so sure what this will do economically for the South of France, but it does give me more grounds for optimism that the physical environment will survive. Nobody wants to see decaying vineyards ripped up and replaced with cereal or rape-seed fields. Greater foreign investment will see the maintenance of the vineyards on the landscape. Why is this important? Well, what would you rather buy: a nice house in a village surrounded by vineyards or a house in village surrounded by grain silos and yellow fields. If we can protect the natural landscape, we can protect the value of properties in the South of France.

Thirdly, with a climate of over 300 days of sunshine a year, the South of France will not only continue to prosper from it's tourism industry (like it has successfully done so over the last 150 years), but it will also benefit from the investment in renewable energy sources (primarily wind and solar energy). With developments in battery storage technlogy, solar energy and small residential wind turbines will get a second-wind (if you pardon the pun). There was a risk that with the phasing out of Government tax subsidies, solar panels and wind turbines would move into a slow decline. But with the development of new battery technlogy which makes it cost effective to store surplus energy to be used on cloudy, windless days; the renewable energy sector will get a much-needed boost. The centre of the French renewable sector is based in the South of France. In addition, the South of France has seen continued growth in it's key business hubs (Toulouse: aerospace; Montpellier: bio-tech and IT; Marseille: research & development). This will continue to draw more people into the South of the country and continue the upward demand for housing in South France. 

Thinking of buying an Investment property in France in 2023 . . . ?

I hope that I have given you some food for thought about considering the South of France as a destination for investing in property. If you would like to discuss the concept in more detail, please reach out to me on the contact details below. Further information on the French property market in South France can be found from the following resources: 

• For more information about French house prices see House prices in France 2022-2023 
• For an analysis of the housing market in France, see French Property Market 2023
• Read about the Best Places to buy investment property in France 
• For information about a tax efficient vehicle for operating a rental property in France, please read Renting out furnished property in France.

Our business partner, Artaxa RE/MAX, is an international real estate agency based in the Languedoc region of the South of France. 

If you would like to discuss suitable towns and villages in the South of France for a property investment, then please call Jane Laverock on +33 6 95 50 19 21 or email her at Jane Laverock.