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Four months later, what are the effects of rent caps in Paris?

Posted on December 17, 2015 by Paris Property Group

Real estate professionals have been examining the impact rent control has had on the Paris real estate market since its implementation in early August. A significant drop in the number of properties above rent limits and a diminished interest in Paris by rental investors are among reported factors.

As previously reported by Paris Property Group, rent caps came into effect in Paris on August 1st and involved setting average rental prices per area with owners unable to charge over 20% or under 30% of those median rates. Soon after its adoption, the new legislation met with an appeal filed by property owners and disfavor regarding the difficulty in applying it.

Since then numerous professionals have publicly had their say about the controversial law’s effects on the capital’s real estate sector. On the one hand, some notable results on the city’s rental prices have been observed. Sébastien de Lafond, CEO of MeilleursAgents, explains in a first assessment made by the site from a sample of 30,000 rentals, that while between January and July of this year 46% of rentals exceeded maximum price limits to be enforced, since August 1st — the enforcement date — that number dropped to 29%. Ian Brossat, deputy mayor to Paris Mayor Anne Hidalgo, commented in a press release: “While this trend still needs to be confirmed in the long term, it is a particularly encouraging first indicator” of the measure’s success.

Difficult to enforce:

Nonetheless, the fact remains that a third of rental properties exceed median rents by over 20%, and are thus illegal in the face of the new rent control legislation. One particular feature of the new law does allow owners to charge rent in excess of agreed limits if their property presents an exceptional characteristic such as a terrace or a view. However, it seems implausible that as many as one out of three apartments for rent in Paris possess unique features justifying a rental supplement.

A study led by MeilleursAgents for France Bleu shows that the percentage of rentals exceeding their legal price reaches up to 69% — in the Jardin des Plantes park neighborhood in the 5th arrondissement for instance ­— and 61% in the Archives district in the 3rd.

In cases such as these, it is up to tenants to raise the issue with the city. Ian Brossat encourages tenants to “make use of the law” and not hesitate to contest the owners’ rental claims in court. However, it has now been over four months since the law’s application and not a single claim has been filed. Nonetheless, tenants have three years to challenge the lease agreement they signed, with penalties applying to owners retroactively.

Some blame badly set median rental amounts for owners’ reluctance to adhere to legally-set amounts. One such example is the Clignancourt area in the 18th which comprises ideally located apartments in Montmartre with sprawling views on the city as well as properties on the periphery of Paris with views on the ring road, yet price ranges are similar for both.

Vocally contesting the legislation, CEO of Century 21 Laurent Vimont had predicted that it would cause a decline in rental offer as owners would sell their properties or resort to short term letting like Airbnb, whether legal or not. This prediction is yet to be proven as the MeilleursAgents study shows that the number of apartments put on the rental market since August 1st is substantially similar to last year’s figure.

Impact on overall prices:

As of yet, rent control has not affected Parisian property prices negatively, as shown by MeilleursAgents’s latest price barometer. In fact, small apartments have actually seen their prices rise in September. The study states that “given the context of the rent caps implementation, one could logically expect a price decline,” but it is still too soon for this phenomenon to occur and “a longer period of time is necessary for the impact of rent control on prices to show.”

Investors leave Paris for Île-de-France:

According to Century 21, rental investors have “deserted” the Parisian property market, preferring to invest in the periphery and the rest of the Île-de-France region where rent caps do not apply. Sales to investors were down by 21.9% between the third quarter of 2014 and the third quarter of 2015, while rising by 34.1% in Île-de-France and by 12.6% in the rest of France.

Photo credit: Wikimedia Commons / Joseph Plotz

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