Borloo new housing scheme: The keys to successful investment
The Borloo new housing scheme, introduced in 2003, was a fiscal tool aimed at encouraging investment in new real estate in exchange for renting at moderate rents. Although this scheme is no longer available for new investments, it remains relevant for understanding the evolution of fiscal policies and real estate investment strategies in France. This article explores the specifics of the Borloo new housing scheme, the tax benefits it offered, and the keys to successful investment within this framework.
What is the Borloo new housing scheme?
The Borloo new housing scheme, also known as Borloo populaire, targeted investors purchasing new or off-plan properties (VEFA) in areas where there was high demand for rentals. In exchange for renting at capped rents for a minimum of 9 years, investors could benefit from a significant tax deduction on their rental income.
Tax benefits of the Borloo new housing scheme
The Borloo new housing scheme offered several tax benefits:
- Specific deduction: Investors could deduct up to 30% of their gross rental income throughout the rental period, significantly reducing their taxable base.
- Tax reduction: The scheme also allowed for a reduction in income tax, equivalent to a percentage of the property's acquisition price. This reduction was spread over the 9 years of the rental commitment.
- Capital gains exemption: After 15 years of ownership, any capital gains made upon property resale were completely exempt from income tax, providing a favorable tax exit.
Eligibility conditions
Several conditions had to be met to benefit from the Borloo new housing scheme:
- Type of property: The property had to be new or off-plan, located in an eligible geographical area with high rental demand.
- Capped rents: The property had to be rented at rents below market rates, according to the limits set by law based on the geographical area.
- Eligible tenants: Tenants had to meet income criteria, with income thresholds defined by legislation.
- Rental period: The property had to be rented for a minimum of 9 years, with the possibility of extension to maximize tax benefits.
Strategies for successful investment under Borloo new housing scheme
To succeed in an investment under the Borloo new housing scheme, it was essential to:
- Choose the right location: Investing in areas with high rental demand ensured high occupancy rates and minimized the risk of vacancy.
- Optimize financing: Using a mortgage could leverage the investment, while maximizing tax deductions on loan interest.
- Comply with legal obligations: It was crucial to adhere to rent caps and tenant income conditions to avoid any challenge to tax benefits.
Real-life examples
Suppose an investor purchased a new apartment for €250,000 in 2006 under the Borloo new housing scheme. By meeting rental conditions for 9 years, they could benefit from a 30% tax deduction on gross rental income, as well as an income tax reduction, while also enjoying a capital gains exemption after 15 years.
Laws governing the Borloo new housing scheme
The Borloo new housing scheme was regulated by the General Tax Code, specifically articles 31 and 199 septvicies. These articles defined eligibility conditions, rent and income thresholds, as well as deduction and tax reduction modalities. Adhering to these laws was essential to benefit from tax advantages.
Conclusion
The Borloo new housing scheme was a significant lever for promoting rental investment in new real estate in France, offering substantial tax benefits to investors. Although no longer in effect, it remains a key example of how fiscal policies can influence the real estate market. Insights from the success of the Borloo new housing scheme can guide current investors in choosing newer schemes, such as Pinel or Denormandie, to optimize their rental investment strategy.
