Buying bare ownership of a new-build home as an investment: how it works

A different use from the gift-based split ownership already covered in this guide

Do not confuse this arrangement with splitting ownership to pass a property to your children while keeping the usufruct for yourself, covered in our article on giving away bare ownership while keeping the usufruct. Here, the investor buys the bare ownership of a new-build home as an investment: an institutional landlord, a social landlord, a public housing body or a property company, holds the temporary usufruct in order to let it, typically for 15 to 20 years.

The legal regime: social rental usufruct and Civil Code default rules

This arrangement relies on the social rental usufruct regime (Construction and Housing Code, articles L. 253-1 to L. 253-8, from the ENL Act no. 2006-872 of 13 July 2006): the usufruct of one or more dwellings is created by agreement for the benefit of a legal entity, for a minimum term of 15 years, with a view to letting.

Article 619 of the Civil Code caps at 30 years any usufruct granted to a legal entity, which explains why these arrangements are temporary and never for life. On expiry, when the term is reached (article 617 of the Civil Code), full ownership reverts to the bare owner without a new transfer deed or any taxable event.

Lower fees, no wealth tax: two real advantages, for the right reason

Transfer duties are assessed only on the price of the bare ownership (article 683 of the CGI), which excludes the value of the usufruct: notary fees are mechanically lower than for a full-ownership purchase.

The property generally escapes the real estate wealth tax (IFI) for the whole duration of the split, not through a dedicated tax loophole, but under the general rule of article 968 of the CGI: the usufructuary is liable on the full value, and the bare owner has nothing to declare. Since the institutional usufructuary is generally not an individual subject to the IFI, the property escapes it in practice.

A figure never to confuse with the tax scale

The commercial discount often advertised, around 40% for the usufruct and 60% for the bare ownership, is a market practice, not a legal rate: the real range observed runs from 30% to 46% depending on the operator and the term. The only official scale for a usufruct of fixed duration, article 669-II of the CGI, sets 23% of the full-ownership value per 10-year period, without fraction, that is, 46% for 20 years, a figure different from the 40% sometimes quoted. This tax scale, relevant for registration duties and IFI where applicable, and the commercial price negotiated between the developer and the investor, are not the same thing.

Charges and property tax: a contract clause, not the default rule

Having the institutional usufructuary bear property tax and major repairs is not the Civil Code's default rule, which in principle puts major repairs on the bare owner (articles 605 and 606). It is a contractual clause departing from that default, common in these arrangements, but it must appear explicitly in the split-ownership agreement or the reservation contract before any commitment.