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case. Real Estate: Layoffs, Bankruptcy Filings… Why Is Bankruptcy Risk So High Among Developers?

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With new housing production down by 50%, the real estate development sector is going through a historic crisis. One leader in the sector has already announced a social plan and others may follow during 2024. According to the Construction Federation, 150,000 jobs in the sector will be at risk by 2025.

This will be the first hot file on the new housing minister’s desk. Facing a new real estate crisis, with production expected to drop by 50% in 2023, developers in France have begun to lay off some of their staff. Vinci Immobilier was the first to open the ban. In mid-January, the sector leader presented the Employment Security Scheme (PSE) to the social partners. However, without disclosing the number of jobs threatened. Nexity, No. 1 in new construction, may make its own announcement by the end of February. But for several months now, fixed-term contracts, temporary workers and external service providers have been laid off to cut costs.

Also read:
Real estate crisis: “There’s a kind of distress” among developers who see their activities collapse

In the Toulouse metropolis, which along with Montpellier concentrates most of the promotional activity in Occitanie, the sector is also declining. Toulouse Premium Promotions filed for bankruptcy in the Commercial Court before Christmas and staff cuts and restructuring are mounting among the biggest names in the market. While there are about a hundred developers in the Toulouse urban area, the smallest developers are likely to go out of business during the year.

150,000 jobs are at risk

The French Building Federation (FFB) estimates the risk to employment at 150,000 jobs at risk between 2024 and 2025 across France. It is not the business’s fault to warn the government about the measures that have hurt the sector over the years.

Also read:
Social housing: demand explodes, supply struggling to keep up… 2024 year of all risks in Occitania

The first was the introduction of the Solidity Rent Reduction (RLS) which has reduced the income of HLM groups by 1.3 billion euros per year since 2018. Lacking resources, many social landlords have sometimes cut social housing construction in half. The executive also restricted access to penalizing zero-rate loans for first-time buyers, then announced the end of the penalty system that allows individuals to invest in rental real estate until the end of 2024 in lieu of capital gains tax.

Construction sites down 22%

These risky decisions along with the quadrupling of interest rates in one and a half years have completely paralyzed the sector. Candidates for purchases are no longer creditable, developers are no longer building new housing, construction starts at 22% lower and the icing on the cake, mayors are still issuing fewer permits (-23.7% in 2023. in France). Just 280,000 housing units were started in France last year, the same level as in 1992, the height of the real estate crisis.

Also read:
interview. Housing crisis: “We’ve never built so little, while demand is growing”

Faced with this crisis, the state sought to tackle the most urgent situation last year by asking the Caisse des Dépôts and Action Logement (formerly 1% Logement) to buy 50,000 homes from private developers who could no longer find borrowers. In recent months, the Housing Alliance which brings together all players in the sector* has extended its proposals to various housing ministers. All remained a dead letter. Housing Minister Guillaume Kasbarian, who inherited the last protocol rank in the Atal government, will face an economic but also a social crisis as French people can no longer find housing, especially with a completely paralyzed rental market. Matignon has made housing one of the priorities for the first 100 days. See you in April.

* Developers, social landlords, building federations, real estate agents, etc.

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