The Denormandie scheme: a tax exemption tool for urban renewal

Since its introduction in 2019, the Denormandie scheme has established itself as one of the major tax levers in favor of rental investment in renovated older property. Inspired by the Pinel schemescheme, Denormandie aims to revitalize run-down city centers while offering attractive tax benefits to private individuals. At the crossroads of economic, social and environmental issues, the Denormandie scheme illustrates the public authorities' determination to reconcile investment incentives with improvements to existing housing stock. Here's an overview of this scheme, which is still little-known to the general public, but has many advantages.

Genesis and objectives of the system

The Denormandie scheme takes its name from former housing minister Julien Denormandie, who worked to introduce it in January 2019. This tax mechanism was designed with a dual objective: to encourage the renovation of older housing located in declining urban areas, and to increase accessible rental supply.

Faced with the obsolescence of part of France's housing stock, particularly in certain medium-sized towns and in city centers that are losing their appeal, the government wanted to offer an incentive tool to revitalize these areas. The Denormandie scheme therefore targets dilapidated housing in need of major renovation, with the aim of improving the quality of buildings and housing conditions.

How it works

The Denormandie scheme is aimed at private individuals wishing to invest in older rental property, provided they carry out work representing at least 25% of the total cost of the transaction (purchase + work). The work can be carried out by the purchaser themselves or by contractors, but must involve improving the property's energy efficiency or structural renovations (e.g. facade renovation, roof replacement, conversion of commercial premises into residential accommodation, etc.).

Once the work has been completed, the property must be let unfurnished for a period of 6, 9 or 12 years, subject to rent and tenant income ceilings set according to the property's geographical area. In return, the investor benefits from a tax reduction calculated on the total price of the investment:

• 12% for a 6-year lease
• 18% for a 9-year lease
• 21% for a 12-year lease

The maximum amount used to calculate the tax reduction is 300,000 euros per year, with a ceiling of 5,500 euros/m².

What areas are eligible?

Unlike the Pinel scheme, which is reserved for tense zones (zones A, A bis and B1), the Denormandie scheme mainly targets towns eligible for the "Action Cœur de Ville" program, or towns that have signed an agreement to revitalize the area.

To date 222 medium-sized medium-sizedthroughout France. These towns have been chosen for their development potential and urban regeneration needs. This enables real estate investment to be refocused on areas neglected by traditional urban policies, which are often centered on metropolises.

Eligible work and technical criteria

To qualify for the scheme, the work undertaken must lead to a real improvement in the property. This may involve :

• Thermal insulation work (walls, roof, windows)
• Modernization of heating equipment
• Interior fittings (kitchen, bathroom)
• Creation of living space (attic, annexes)
• Conversion of premises not intended for residential use (former shop, garage)

It is also possible to benefit from the scheme if, after work, the home achieves an overall energy performance improvement of at least 20% (or 30% in certain cases). In this case, an energy audit is required before and after the work is carried out, to certify the improvements made.

Advantages for the investor

The Denormandie scheme combines several advantages:

1. Attractive tax breaks: tax reduction rates are identical to those of the Pinel scheme, while offering the possibility of investing in less competitive areas.
2. Asset enhancement: renovating an older property often increases its market value and makes it easier to attract tenants.
3. Social and environmental impact: by renovating a dilapidated home, the investor contributes to improving the living environment of the occupants and reducing the number of "thermal wastes".
4. Geographic diversification: the cities concerned are varied and offer investment opportunities outside the major metropolises.

Limits and points of vigilance

Despite its many advantages, the Denormandie scheme also has a number of limitations. On the one hand, the need to carry out substantial work may hold back some investors, particularly those lacking experience in site management. On the other hand, profitability may be less immediate than in new-build, especially if technical or administrative problems slow down the work.

It's also imperative to carefully study the local rental market to ascertain demand, as some eligible cities may suffer from a lack of economic or demographic dynamism.

Lastly, compliance with technical requirements and proper completion of the work are sine qua non conditions for obtaining the tax reduction.

A device for the future?

At a time when the challenges of energy renovation and regional revitalization are increasingly at the heart of public policy, the Denormandie scheme is likely to enjoy renewed interest. It is fully in line with the objectives of energy sobriety, the fight against land artificialisation and the ecological transition of the real estate sector.

With better communication and more support for investors, Denormandie has the potential to become a central tool for responsible rental investment.