Rental property: SCPIs to replace Pinel?

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While the Pinel system is due to be abolished at the end of 2024, the Court of Auditors is publishing a report this Thursday recognising its certain effectiveness. It suggests the creation of specific SCPIs to replace it.

Rent control, ban on renting out energy-intensive housing, rising credit costs… Rental investment has been an obstacle course for several years. And the abolition of Pinel at the end of 2024 risks dealing it the final blow. This system, which came into force ten years ago, allows individuals investing in new or renovated housing to benefit from a reduction of their income tax. In exchange, they grant their tenants rents 10% to 15% lower than market rates, to facilitate housing for the middle classes, whose incomes are too high to qualify for social housing but insufficient to afford proper private housing. Pinel thus finances the construction of so-called intermediarieswhose rents are between those of social housing and those of the private sector. But this is a system with “the very relative effectiveness, which justified its elimination on December 31, 2024”asserts the resigning Minister of the Economy, Bruno Le Maire, in his response to a report from the Court of Auditors on Pinel, published this Thursday, September 5.

A report very different from that of 2018, in which the Court advocated the elimination of this rental investment scheme. First, the evaluation carried out by the Court of Auditors since the entry into force of Pinel in 2014 “shows that the tenants correspond to the target aimed at by the system”. In fact, the tenants that the Court consulted “expressed their satisfaction at benefiting fromaffordable rent for comfortable, high-quality housing». Then, the Pinel having “mostly” concerned housing acquired for sale in the future state of completion, rather than properties to be renovated, it has “contributed significantly to the triggering of real estate transactions which could not have been successful without this orientation of individual savings”notes the Court of Auditors. Finally, Pinel seems to have accomplished its mission of reducing taxes for individual investors, with 7.3 billion euros cumulative tax exemptions between 2014 and 2023.

SCPIs to benefit from a recent tax advantage

The Court of Auditors “does not offer recommendations as such”due to the disappearance on December 31, 2024 of the Pinel system, “judged iineffective and too expensive (by the government) for public finances”. However, it considers it necessary to “preserving the attractiveness of intermediate rental housing for individuals”.

The Court of Auditors thus considers that “the creation of SCPI (real estate investment companies) specializing in intermediate rental housing could make it possible to redirect private savings towards the construction and improvement of the housing stock, through a professional manager.”According to the Court, by investing in such SCPIs, individuals could benefit, indirectly, from a recent tax advantage granted to legal entities. Namely the VAT at the reduced rate of 10%, instead of 20%, which has been available since January 1, 2024 to institutional investors who build intermediate rental housing.

SCPIs with profitability far from being achieved

But, according to the French Association of Real Estate Investment Companies, heard by the Court of Auditors, these specialized SCPIs could only be successful if they offered a profitability of at least 3 to 4% per year. “Which is not the case at present”recognizes the Court of Auditors. “Thinking is currently underway to improve the tax system for intermediate housing, in order to attract private savings”responds the Minister of Ecological Transition, Christophe Béchu, to the Court.

Thoughts on the creation of a real status for private landlords, for example? Or, finally, on an extension of Pinel, after two years of a real estate crisis likely to soon bring down the construction of new housing to 250,000 units per year, while 450,000 would need to be built to meet the needs of the French, according to the Federation of Real Estate Developers?