France is gearing up for changes to the taxation structure associated with property transactions, as the Prime Minister has proposed increasing the "notary fees"—officially termed the droits de mutation à titre onéreux (DMTO)—by 0.5 points starting January 1, 2025. This adjustment, which reflects a shift aimed at relieving financial pressures on local departments, raises questions about its impact on prospective homeowners and the already strained real estate market.
During his speech at the "Départements de France" conference on November 15, 2024, Prime Minister Michel Barnier revealed these plans, which are set to last for three years. The increase is expected to yield approximately 1 billion euros for local governments, providing them with much-needed revenue as many cities face budgetary concerns due to declining transaction volumes.
Traditionally mistaken as just notary fees, the DMTO encompasses various taxes collected by notaries on behalf of the state, municipalities, and departments, making up 7-8% of the purchase price for older properties, and around 2-3% for new constructions. This misconception about notary fees and their actual composition has led to significant financial ramifications for home buyers, particularly young buyers who may already struggle to afford homes.
According to financial analysts, the hike could mean additional costs of approximately 1,000 euros for buyers purchasing properties at 200,000 euros, and around 1,500 euros for homes priced at 300,000 euros. An increase of 0.5 percentage points on the DMTO translates directly to correspondingly higher closing costs, which are typically not financed by banks. This concern leads the financial community to warn about potential hindrances for first-time buyers who have limited savings and struggle to secure sufficient financing.
For many, the impact of the new fees may compound existing financial strains. The property market has witnessed significant reductions due to skyrocketing credit rates, dropping transactions by 22% over the past year. Despite the recent slight recovery attributed to lower interest rates, the newly proposed tax increases threaten to dampen any hope for revitalization.
The Federation of National Real Estate Agents (FNAIM) expressed alarm, stating these new DMTO adjustments, when coupled with soaring property tax rates—some municipalities have reported increases of up to 50%—could discourage intending buyers and inhibit the fragile recovery seen lately.
Local departments, which typically apply the maximum rate of 4.5%, have been advocating for more substantial increases. They had requested raises of up to 1 percentage point, which Barnier’s announcement has not fulfilled. Many operators within the sector cite worries this insufficient increase will fail to address the budget shortfalls affecting local government services and projects.
The announcement follows the governmental budget plan for 2025, targeting significant reductions across various sectors, including localities facing demands for 5 billion euros worth of cuts. Departments must find ways to adapt and respond to these fiscal constraints amid dwindling revenue from DMTOs, which are projected to drop significantly again as the slow housing market reveals its impacts.
While local governments may celebrate the prospect of recovering some expenditure through increased fees, many citizens worry about the broader effects on home ownership opportunities. The reality is these increases come at the cost of pushing an already challenging housing market to new depths, particularly for young buyers and those with limited financial support.
Consultants and housing experts hope the government may reconsider the impacts of these reforms before they occur, as critics continue to voice their worries over the longevity of these fee increases and the strain they place on potential homeowners.
Understanding these factors is key to gauging the future dynamics of the French real estate market, particularly how it interacts with broader economic trends and consumer confidence.
