French real estate compared to other investment vehicles

In recent decades, bricks and mortar have proved the surest bet for a profitable investment over a 10-year period, according to a recent study. Real estate ranked ahead of shares in the CAC 40 (France’s top companies listing), gold and other favorite French investments, such as life insurance and the Livret A savings account.

Mortgage brokers Meilleurtaux and economic analysts Astères carried out the study, which compared 10-year investments taken out in France during the period 1980-2003 (the most recent date when a 10-year investment could have been taken out and matured). They found that property consistently gave the highest rate of return from the mid-1990s, well ahead of most other investments in the survey.

The study calculates that the average internal rate of return on a 10-year property investment of 50,000 euros taken out on January 1^st 2003 with 75% mortgage finance would have been 21%. Over the same period, the same amount invested in a portfolio of shares based on the CAC 40 would have realized an average internal rate of return of 7.8%.

The figures do not take account of any tax liability. Here, too, property has advantages. Currently, the sale of a primary residence in France remains exempt from capital gains tax and social charges.

Real estate investment has been particularly attractive because of the strong increase in property prices since the mid-1990s combined with historically low borrowing rates. Normally, the most profitable investments are also the most volatile but real estate bucked that trend over the period studied.

It remains to be seen if stock market investments start to compete again. But the message is that real estate remains a valuable investment, whether buying to occupy or buying to rent.