A New Regulatory Environment: Strategies for Rental Investors
Recent changes in fiscal, energy, and regulatory frameworks are reshaping the profitability landscape of rental properties. Adapt your strategy to navigate these new rules.
On November 7, 2024, the National Assembly passed the “anti-Airbnb” law, aimed at curtailing the tax advantages of short-term rentals in favor of long-term leases. This legislation marks a significant shift for investors in furnished tourist rentals. Here are the key points to consider to adjust your strategy effectively.
Key Provisions of the Anti-Airbnb Law
Revision of Tax Deductions
- For non-classified properties: The tax deduction will be reduced from 50% to 30% starting in 2025, aligning it with the tax treatment of unfurnished rentals.
- Rental income cap: This 30% deduction will only apply to annual rental incomes below €15,000, compared to the current €77,700 limit.
- For classified properties (with higher comfort standards): The deduction will be lowered from 71% to 50%, and the income ceiling for eligibility will drop from €188,700 to €77,000. These changes will affect classified properties that were previously fiscally advantageous.
Energy Performance Requirements
- Furnished tourist rentals must now meet the same energy standards as long-term rentals.
- Ban on energy-inefficient properties: From January 1, 2025, properties rated G will be banned from rental, followed by properties rated F in 2028 and E in 2034.
- Grace period for existing properties: Properties rated F and G will have ten years to reach at least a D rating.
Strengthening Local Regulations
Municipalities will now have the authority to set quotas for tourist rentals, designate zones reserved for primary residences, and limit the maximum rental period for primary residences from 120 to 90 days per year.
Implications for Investors and Adaptation Strategies
These changes necessitate a strategic reassessment of your rental investments:
- Re-evaluate Short-Term Rental Profitability
With reduced tax deductions and income caps, the profitability of tourist rentals is diminishing. In some high-demand areas, switching to long-term rental may be more financially prudent. - Anticipate Energy Renovation Costs
Renovating properties to avoid energy restrictions is now essential. Although costly, these improvements help preserve property value and secure long-term profitability. - Diversify and Maintain Geographic Flexibility
Given the potential for local quotas, diversifying assets or investing in areas with less stringent regulations can be a smart approach. Similarly, consider complementary investments, such as real estate investment funds (REITs), for returns less exposed to the property market.
A New Landscape for Tourist Rentals
These new measures are intended to reduce the competitive advantage of tourist rentals and prioritize housing access for local residents, particularly in high-demand areas. Tourist property owners will need to navigate:
- Reduced profitability due to lowered tax deductions and income caps;
- Compliance costs for energy upgrades to meet new standards;
- Local restrictions limiting rental flexibility.
If you are a tourist rental investor, this law prompts a reconsideration of your real estate strategy. Prioritizing long-term rentals and diversifying your portfolio now appear to be prudent approaches to safeguard profitability within an increasingly regulated environment.
The ultimate goal is to encourage property owners to offer longer-term rentals to support housing availability for local residents and workers, especially in high-demand areas where housing demand far outpaces supply.
Ten-Year Deadline for Rentals to Meet D Energy Rating
In addition to reduced tax deductions, the proposed law requires tourist property owners to comply with rental bans on energy-inefficient properties, as already enforced for unfurnished rentals. Therefore, any property listed on Airbnb after the Le Meur-Echaniz law takes effect will need to have an energy performance certificate (EPC) rated at least E. In 2034, this threshold will increase to a D rating, at which point properties rated E will no longer be eligible for rental. Properties rated G will be banned as of January 1, 2025, followed by F-rated properties in 2028.