Economic and demographic development in Reunion Island.

Reunion, this overseas territory, with its heavenly beaches and volcanic land, offers attractive investment prospects, whether for residential or commercial real estate !

Indeed, Reunion has been enjoying a significant economic and demographic boom for many years: + 42% GDP between 2008 and 2018 and + 7.5% population growth between 2007 and 2017.

Population growth creates a need for additional housing, while economic growth creates a need for additional commercial and office space.

INSEE and DEAL have carried out a study on the housing outlook for Reunion by 2035. This study shows a need for 169,000 additional housing units by 2035, which varies according to the region (the greatest need is in the CINOR, CIVIS, and TCO regions).

This housing need is related to the increase in the number of households on the Island, from 306,000 households in 2013 to 419,100 households in 2035 (medium scenario).

Several factors explain this increase in the number of households. Currently, Reunion has a population of nearly 859,000 (of which 15.6% are over 60 years old) and is expected to reach nearly one million by 2035. Although demographic change in Reunion accounts for half of this increase, it is not the only factor considered in this study.

The decline in household size should also have an impact on housing demand. In 2013, households in Reunion were composed of 2.7 persons and are expected to decrease to 2.3 persons in 2035. The aging of the population and changes in cohabitation patterns are the main causes: aging households are generally composed of two people and more and more households are composed of one person (later pairing, more frequent separation...).

This puts the annual housing need at 7680, yet in 2019, 7260 new homes were authorized and started, a 4.2% decrease from 2018.[1]

Currently, 89% of housing units are occupied as primary residences, 44% of which are rented. The demand for rental housing in Reunion is very high and therefore makes it possible to envisage a serene real estate operation, by minimizing the risk of vacancy.

In order to stimulate housing construction, several tax measures have been put in place overseas.

Tax exemption in Reunion Island was very successful until 2008 thanks to the various governmental measures implemented since 1986 (Pons law, Paul law, Scellier law, Girardin law, Duflot law and now Pinel law). At that time, it was possible to combine tax reduction, rental profitability and capital gain on resale. The economic and real estate crisis of 2008 has strongly contributed to the slowdown of these investments. In particular, this golden era had seen the emergence of unscrupulous and opportunistic developers, which have damaged the aversion of investors.

Although this era is now over and has had some setbacks, it is still advantageous to invest in real estate in Reunion Island. In addition to the tax advantages, the operation aims to build up a long-term asset base, as the increase in prices in Reunion no longer allows for a short-term capital gain. New property prices have risen sharply and there is now a significant gap between them and old property. It is therefore important to focus on premium locations and quality constructions, which will be valued in the long term.

Whether you opt for a long-term rental investment, favored by tax exemption schemes or for a seasonal rental, Reunion Island is a good bet for prospective investors.

For a long time based on coffee and sugar cane cultivation, Reunion's economy is now turning more towards services (especially tourism, IT, transport and services to people and companies) but also aquaculture and the development of renewable energies. The main port of Reunion (Pointe des galets) is the only French port which fulfils the functions of a marina, a commercial port, a fishing port, a maritime station and a naval base (3rd French naval base).

In general, the economy of Reunion Island has been completely transformed since the departmentalization in 1946, from an agricultural colony to a modern region. The GDP has been increasing steadily since the 1990s. It is the French region with the highest growth rate until 2007 with an average of 5% per year. Despite the crisis of 2008 and the economic slowdown, the island saw a growth of 42% between 2008 and 2018. Even if the GDP remains lower than that of metropolitan France (€22,200 per capita in 2018 compared to €32,900 for metropolitan France[2]), and the unemployment rate significant, the state promotes and supports the development of employment and business creation, including with the PETREL 1 plan adopted in October 2019 and the PETREL 2 plan implemented in June 2020 in order to cope with the consequences of COVID 19.

Although the rate of growth has slowed down in recent years and is likely to slow down again after the COVID 19 pandemic (just like in mainland France), investing in residential or commercial real estate in Reunion Island remains attractive:

  • Demographic growth remains unchanged and the need for housing is still substantial
  • The economy, even if it is experiencing difficulties, benefits from state support plans, the GDP remains growing, the number of companies is increasing (+ 11.8% of creation between 2015 and 2018)

[1 ] New construction in Reunion - DEAL - February 2020


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