Why short-term rentals face declining profitability in france

Short-term furnished rentals in France, particularly through platforms such as Airbnb, have for many years been an attractive investment.  However, offering short-term holiday rentals is no

walk in the park. It can be quite physically demanding, with holidaymakers coming and going every few days, and all that involves. Nevertheless, for those willing to put the work in, holiday

rents have offered higher yields than traditional long-term leases.  Now, a combination of stricter regulations, increasing local taxation, and rising property acquisition costs is making

this investment far less profitable.  Read more: New tough tax rules apply on French holiday rentals from 2025  Landlords face new challenges, including reduced tax benefits, higher notaire

fees, and municipal efforts to appease local residents.  This article explores the growing financial and legal difficulties of short-term furnished rentals and considers an alternative:

classifying rental properties as touristic accommodation under the Code du Tourisme. The underlying problem has been the rapid growth of short-term rentals, from 300,000 in 2016 to more than

one million in 2024. This has prompted the Macron government to act, citing housing shortages and price inflation as key concerns.  In October 2024, the government approved a series of

measures limiting the tax advantages of furnished tourist rentals while giving municipalities greater power to regulate them. One of the most impactful changes is the reduction of tax

allowances under the micro-BIC regime.  Previously, landlords renting out furnished holiday properties benefited from a 50% tax allowance on turnover up to €77,700. Under the new law, this

deduction has been significantly lowered, to 30%, on turnover of just €15,000.  This means a significant increase in taxable income for landlords, substantially reducing their profit

margins. (Note that there is a way to keep the former higher allowance, as I shall explain later.) Additionally, the government has imposed stricter energy efficiency standards for

short-term rentals, aligning them with those required for long-term leases.  Finally, local authorities now have enhanced enforcement powers, including the possibility to restrict the number

of rental nights permitted annually and imposing fines on non-compliant landlords. The problem is, this is not the first, nor the last, time that property investors have been targeted.

Beyond taxation, property acquisition and ownership costs have also increased, further impacting profitability.  Here are two prime examples: LOCAL PROPERTY TAXES   All property owners must

pay taxe foncière, an annual tax that many municipalities have raised in recent years to compensate for budget shortfalls.  In addition, while taxe d’habitation has been abolished for

primary residences, it remains applicable to secondary homes, including short-term rental properties.  Furthermore, some municipalities, particularly in tourist areas, have been allowed to

dramatically increase rates, by up to 60%, to deter short-term rental investments. In 2024, the number of communes applying surtaxes on secondary homes rose dramatically, with many imposing

the maximum 60% surcharge. HIGHER NOTAIRE FEES  As of April 1, 2025, departments have the option to increase droits de mutation à titre onéreux (DMTO), that is to say the property purchase

costs commonly referred to as ‘notaire fees’, by 0.5%.  Offering short-term rentals used to be a side business that many expatriates and early retirees would undertake; however, it is

important to be aware that this activity is becoming notably more onerous, year after year. Thus, for landlords still interested in short-term rentals, it is perhaps worth considering

registering your property as “touristic accommodation” under the Code du Tourisme.  This classification distinguishes properties from standard furnished rentals and offers potential

benefits, such as: Tax advantages: A 50% tax allowance on turnover up to €77,700 Extended rental periods: Unlike regular short-term rentals, classified properties may not be subject to the

same strict rental duration limits imposed by municipalities. Increased market appeal: Touristic classification can enhance credibility and attract more renters seeking quality-assured

accommodation. However, obtaining this status requires compliance with stringent criteria, such as minimum equipment standards, size requirements, and service obligations. The process

involves an application to local authorities and possible inspections.  AN INCREASINGLY CHALLENGING MARKET IT is apparent that the short-term rental market in France is becoming increasingly

difficult for landlords, due to stricter regulations, reduced tax deductions, and rising acquisition and ownership costs.  Read more: Is taxe d’habitation required for flats let in French

farmhouse? The cut in tax allowances drastically reduces profitability, while higher notaire fees and local taxes add further financial strain. For those seeking to remain in the short-term

rental business, transitioning to touristic accommodation classification under the Code du Tourisme may offer a partial solution, though it requires meeting stringent requirements.  Given

the evolving landscape, property owners must carefully weigh the long-term viability of short-term rentals against alternative investment strategies, such as long-term leasing, or investing

in financial markets. Christopher Davenport is a financial advisor at Kentingtons