Guadeloupe: a paradise subsidized by France
March 13, 2017
It is a popular vacation destination among French tourists. More than 80% of visitor arrivals come from metropolitan France. It used to be virtually unvisited by American and other non-French tourists. But this might change with the introduction of non-stop flights from New York, Baltimore and Boston airports by low-cost carrier Norwegian Airlines. The island is so buzzy that Conde Nast Traveler named it one of the top 16 places to visit in 2016.
Attractions include lush rain forests, dramatic volcano, spectacular cascading waterfalls, crystal clear turquoise waters, charming villages, and French-Caribbean influenced culture and exquisite cuisine.
The territory remains far less crowded and more affordable than most Caribbean islands and real estate in Guadeloupe remains a bargain compared to other Caribbean states. In fact, according to the Caribbean Real Estate Observatory, the average price of residential property decreased 10% to EUR 164,795 in the first half of 2016 compared to the same period in 2015:
- the average price for apartments declined 10% to EUR 115,541 with average selling time of 28.7 weeks.
- the average price for houses increased 4% to EUR 283,591 with average selling time of 24.3 weeks.
- the average price for land fell by 26% to EUR 90,300 with average selling time of 34 weeks.
As in France, there are no restrictions on foreign ownership of properties in Guadeloupe.
A total of 3,400 housing units were approved for construction in November 2016, 36% higher than in November 2015 and a noticeable increase from the first half of 2016, according to the INSEE. Mortgage registrations have also steadily increased since the start of 2016. In November 2016, a total of EUR 186.8 million worth of mortgages were registered year-to-date, 12% higher than in YTD November 2015, according to Conseil General De L’Environment Et Du Development Durable.
Rental incomes in Guadeloupe - rental yields range from 4.94% to 5.59%
Apartments in Guadeloupe earn what we term ‘moderate’ rental yields with a narrow range of from 4.49% to 5.59%.
Smaller apartments are the most expensive and the most profitable. A 40-sq m apartment sells for about US$4,100 per square metre, and earns rental yields of around 5.59%.
Bigger apartments are more affordable, as 120 sq. m. apartments sell for about US$3,000 per sq.m.; but they are also slightly less profitable in terms of rental returns, earning 4.94% in rental yields.
Rental income tax is surprising low in Guadeloupe
Guadeloupe’s tax system exactly mirrors that of France.
Rental Income: Rental income earned by nonresidents is taxed at a flat rate of 20%. Distinction between furnished lettings and unfurnished lettings is important because it has implications for taxation, primarily for deductions allowed.
Capital Gains: EU residents and residents of France now pay 16% on the net gain, after inflation relief, and after deduction of acquisition and improvement costs. Nonresidents of an EU country pay CGT at a rate of 33.3%, subject to any applicable double tax treaty.
Inheritance: French private international law uses the standard double rule on inheritance: the law of the deceased’s domicile applies to moveable assets, and the law of the location of the property applies to immoveable assets.
Residents: French residents are taxed on their global income at progressive rates from 5.5% to 40%.
Transaction costs range from
high to very high in Guadeloupe
Round-trip transaction costs in Guadeloupe, as in France, are high. Total costs for old properties (more than 5 years) can range from 16% to 27%. New properties without previous sales have the highest costs at 27.6% to 44% because of the 15.4% VAT. Notary fees for old properties are fixed at 8%, but range from 2% to 5% for new ones.
Guadeloupe's laws are pro-tenant, as in France
Guadeloupe follows French tenancy law, which is very pro-tenant.
Rent: Though the initial rent can be freely agreed, the rent can only be revised once a year, and not more than the increase in the (new) INSEE rental index. In combination with a highly restrictive contract structure, this means that rentals of old apartments have tended to drag well behind new rentals and prices.
Tenant Security: An unfurnished property contract has, as a minimum, a three-year term, though furnished property contracts may be for one year. In both cases, even when the contract ends, the owner can only recover the property if he or a family member intends to live there, or he intends to sell. In addition, eviction through the legal system takes a long time.
Social unrest has hit property pricesHigh unemployment is a long-standing problem in Guadeloupe, currently standing at 23.7%, one of the highest in the world, according to the International Labour Organization (ILO). This leads to political and inter-racial tension. In fact, rising crime in Guadeloupe has prompted France to send in police reinforcement – a total of 70 police officers has already reached the territory in late 2016. They are mainly stationed in Pointe-á-Pitre, Abymes and Baie-Mahault.
“The perception of difficulties is higher than in Martinique,” says Douglas Rapier of Atout Immobilier. “Guadeloupe has had more of an independence movement. They are more cognizant of the history of slavery, so social unrest is higher.”
The economy is dependent on tourism and agriculture. In addition, Guadeloupe relies very substantially on French subsidies. Almost all local housing built in the DOMs is subsidized under the Loi Girardin, which allows 40% of a DOM-located property purchase cost to be written off against future tax payments (the parallel incentive in metropolitan France is the Loi De Robien). Such incentives have spurred an entire industry of financial consultants advising on ‘defiscalisation’.