Pinel Investments: How to optimize returns after the tax cuts are over?

The Pinel system, often criticized by investors for its low profitability, will develop in the coming months. If the current rates of tax reduction are maintained until December 31, 2022, the situation will change from 2023. The system will indeed be maintained for 2023 and 2024, but with regressive tax cuts. Therefore, you have a few months left to benefit from the full Pinel system tax reductions (12%, 18% and 21%, depending on the rental period of the property). Since the commitment period under the Pinel scheme is limited to 12 years, a question arises for investors. What is the best option to make your real estate profitable after the “Pinel period”?

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In a study carried out for the French Lease Investment Agency, Primeview carried out simulations to estimate Pinel’s return on investment over the period 2022-2041, depending on the option chosen after 12 years of Pinel’s lease. The three scenarios studied by Primeview start as follows: an individual buys a property worth €191,220, financed with a loan at 1.86% over 20 years, to be rented out using the Pinel device for a period of 12 years. Therefore, our investor is required to offer limited rent in limited areas during the period 2022-2034 to benefit from the tax reduction. Then, for the period 2034-2041, the scenarios diverge.

Three scenarios were considered

In the first scenario, our investor keeps intermediate rents, to continue to benefit from tax reductions (case 1). In the second scenario, he abandons the Pinel system and rents his property at an unlimited rental rate (20% more than the intermediate rent). Finally, in the third scenario, our investor uses the Loc’Avantages system, which allows him to receive an income tax discount on the condition that he offers limited rent and unfurnished housing. For the latter case, Primeview assumes that the Loc’Avantages system will still be in place in 2041, which is obviously not guaranteed. In all three scenarios, the property will be resold at the end of 2041, assuming property prices increase by 1% per year.

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The results of these three simulations are as follows. In case 1 (intermediate rents), the annual rent is estimated at 1.48%. This is the least profitable option for our investor. Cases 2 (common law tenancy) and 3 (Loc’Avantages scheme) offer slightly higher efficiencies of 1.63% and 1.64% respectively. If these returns are not necessarily impressive, at the moment it remains more interesting to make rental investments using the Pinel system (from 1.4% to 1.6% yield) than to invest in “regular rights” (0.6% on average), that is, without a maximum rent or tax benefits. This observation is mainly explained by the amount of tax reduction, which is 31,231 euros (for the three scenarios) during the 12 years of the lease through the Pinel system.

Fall in yield in 2023

If you plan to invest with a Pinel device, we strongly recommend that you start before the end of the year. From 2023, yields will automatically fall due to the regressive nature of tax credits. So, according to Primeview’s modelling, there would be a tax benefit of “just” €24,427 with a home bought in 2023 and €17,635 if bought in 2024. In more detail, the theoretical rates of return on rental housing in 2023 through the Pinel system will be 1.32% (case 1), 1.50% (case 2) and 1.51% (case 3). From 2024, the drop will be even more significant: 1.19% (case 1), 1.37% (case 2) and 1.38% (case 3).

To avoid these drops in profitability, there will always be an option to upgrade to a new device called Pinel +, which will be released in 2023. But to benefit from the latter and to benefit from tax reductions without a discount, investors will be obliged to rent properties that meet certain energy characteristics and area restrictions.