In response to lower than anticipated economic growth the government has announced a further round of austerity measures to tackle the budget deficit.

The housing and construction sectors appear to have come out badly from the review, with four main measures that are proposed.

Prêt à Taux Zéro +

The interest free loan ‘PTZ+’ for first time buyers is being withdrawn for the purchase of an existing older property. In future it will be restricted to new property only.

Although the PTZ+ in not widely known amongst expats, of around 750,000 house sales in France each year, nearly half of them include a PTZ+ as part of the funding package, with most granted for the purchase of existing older property.

The French estate agents association FNAIM consider that the impact of this change will be dramatic, pontentially leading to a fall in sales next year by as much as 20%.

Their concern is echoed by the leading housing economist Michel Mouillart who has stated that ‘the crisis will be bigger than of 2008 and will have a considerably negative impact on mortgage approvals.’

VAT on Renovation Works

The rate of VAT (TVA) for repair and improvement works is to rise from 5.5% to 7%.

This is despite a recent statement from the Benoit Apparu, the Housing Minister, that the existing rate of VAT would be maintained ‘whatever happens.’

The impact of this modest increase is difficult to judge, but it is the cumulative nature of the tax increases and expenditure reductions that concern some in the industry.

Conversely, the Fédération Française du Bâtiment (FBI) consider that there remains a real differential between the lower rate of VAT and the normal rate of 19.6%, ‘which is the only guarantee in the fight against the use of illegal labour.’

New build construction will continue to be subject to the full 19.6% rate of VAT.

You can read more about the reduced rate of VAT for building works at Property Renovation in France

Energy Conservation

There is to be a further 20% reduction in the tax credit available for works of energy conservation.

This tax credit is called the Crédit d'Impôt Développement Durable (CIDD).

The latest reduction comes on top of the 10% cut made in the August austerity budget, and a reduction made in 2010.

The new levels of the tax credits available for the different works of energy conservation have yet to be published, but vary from 10% to 30%.

You can read more at tax credits for works of energy conservation.

Investment Properties

The government has put the final nail in the coffin of the tax credit available for investment properties.

This tax credit, known as 'Scellier', will be completely abolished at the end of 2012, having been salami sliced from 25% to 13% in budget changes over the last couple of years.

Likewise, the tax credit known as 'Censi-Bouvard' for investment in managed accommmodation - old people's homes, student accommodation - also faces a similar fate.

Marc Pigeon of the Fédération des Promoteurs Immobiliers (FPI) considers the change a 'grave error' and estimates that the abolition of the tax credit will cost around 100,000 jobs and reduce VAT receipts by €2 billion.

Given that last year Scellier properties accounted for 60% of all new property sales he may well not be mistaken.

However, his pessimism is not shared by all of his adherents. Jean-Philippe Bourgade, of housing builder Bouwfonds Marignan, considers that ‘In France, economic growth may be weak, but there remains strong demographic growth, which is unfailing from year to year, and in such conditions there is no other choice but to build.'

Others in the industry, such as Alain Dinin, the President of house builder Nexity, believe that, given the long history (26 years) of fiscal incentives for residental investment, a new one will be put in place for 2013.

That would disappoint many critics of these incentives, such as the consumers group Que Choisir, who consider they have been inflationary.

Investors in Scellier and Censi-Bouvard will still be able to recover the VAT payable on these properties on the existing terms.

You can more about these schemes in a related article at Investment Properties Under EU Scrutiny.

No Indexation of Income Tax

As well as the specific changes to the housing and construction sector the government has also announced that tax thresholds will not be lifted in line with inflation, as is normally the case each year.

So the previously announced increase of 2.1% in income tax thresholds (as well as those for inheritance tax, gifts tax and wealth tax) has been abandoned.

Indeed, the government is proposing that the barème will not be increased in either 2012 or 2013, but with a Presidential election next year is certain beyond 2012.