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Buying investment property in France

There was a time when the French property market for overseas buyers mainly meant second homes. Then a few brave souls started to buy homes in live in France, followed by if not a torrent at least a steady flow of others since around 2000.

Today most homes bought by overseas buyers in France are still primarily used as holiday homes or principal residences.

However, a new phenomenon has emerged in the last few years – that of the investment buyer.

Top up pensions
For these buyers the main aim is to purchase a property that will gain in capital value in the years ahead and/or provide a rental income - either now or in the future. This doesn’t necessarily mean buying huge properties at huge prices; many French people, for example, buy a modest second home that will one day provide them with an additional income to top up their pension. Even people on quite modest means can become property investors if they want.

There are several reasons for this new investment trend. One is that though France has not seen the kind of across the board house price inflation witnessed in, for example, Britain, some parts of the country have experienced steady price rises in recent years. This is despite a general overall slowdown in the French market.

France is also recognised as a ‘safe’ investment country compared with some more exotic locations; it has a clear and robust legal system that protects the purchaser.

Property ladder
There are domestic factors too. France traditionally has a low level of home ownership compared with other countries such as Spain, Ireland and Britain. But this is beginning to change as more young people try to get on the property ladder, and as mortgages get easier to find.

Moreover President Nicolas Sarkozy has backed his avowed aim of making France a country of homeowners with tax measures to encourage ownership.

All these factors suggest that France is a solid and safe country in which to invest in property, even if you may not always get the spectacular gains you might find in other countries. However, as with any property investment, you have to know how, what and where to buy.

So what are the factors to take into account?

Type of building – new or old?
Many overseas investing in property in France prefer to buy new build properties. The advantages are fairly obvious. These buildings need less maintenance, which should help boost the profit margin if you are renting the property out. Again, if you are renting it out, remember that many – though not all – French people prefer to live in new rather than old properties. Also, if the developers have done their homework properly, a new development should be in an area where there is demand for tenants and/or buyers.

It can be cheaper to buy new build too. Katie Edwards of property consultants Attika International says: ‘Reduced notary fees at 2.5% – 3% instead of 7.5% of the property price make an attractive saving of 5% on legal costs!’

There are also guarantees on new properties which protect the buyer in the event of any major fault being found; most older properties are sold without structural surveys and essentially it’s down to the buyer to spot any problems.

However, this does not mean that older properties cannot make excellent investments too. Nineteenth century flats in Paris or Marseille, or châteaux in the Gironde, for example, may well perform just as well if not better than new build as investment vehicles.

The key, however, if you are buying primarily as an investment is this: buy with your head not your heart. Quaint or ‘character’ properties may look great – but they may also be hard to maintain, in the wrong location or lack the right kind of facilities. Remember you are not supposed to be choosing a home that you want to live in – but somewhere which will appeal to as many people as possible.

Remy Houtin, chief executive officer of the CEO of developers Alliance Labélisation, says that buyers should also ask themsevlves why they are investing. ‘Are you looking for a property in France for your retirement? Or a French property within easy access of the UK and at an affordable price?,’ he says. ‘Perhaps you are considering making an investment in property for your future or that of your family and wish to benefit from the still comparatively low cost of properties in France?’

There are a number of different ways you may choose to buy and use your investment property:

Your home as an investment – some people choose to buy a home to live in, do it up or simply wait for the market to move in their favour and then sell. In this case you need to think more about the potential for re-sale then rentability. As with any property purchase in France you will still need to think of the tax and inheritance implications.

Second/holiday home – Many people like to make some personal use of their investment by going there for summer holidays or long weekends. Naturally this option will reduce rental yields, especially if you want to visit the property during the summer months when the property is likely to be in greatest demand among tourists. Remember that any rental income you make from this, no matter how modest, has to be declared to the tax authorities. You might want to consider longer periods of letting for the winter months.

Buy to let -This is where the property is let out full-time from the start, either as a residential let or a holiday let. This is of course a phenomenon that has become very popular in countries such as Britain in recent years. The main advantage is that you take full advantage of both the rental potential and any capital appreciation.

The drawback is that you don’t get to use the place yourself. A key issue is how to let it out. Using a letting agency costs more money and reduces your profit margin but is far less work and probably far more efficient at maintaining occupancy. Overseeing the rental yourself can be very time consuming, but may increase your profit margin.

It’s vital with buy to let that you do your homework on the demand for rental properties in the area before you commit to buy. Check out with local letting agencies and estate agencies to find out rental yields and also check local newspapers as well as the internet.

Leaseback -This is an increasingly familiar way of buying French property for overseas buyers. In this scheme you buy the freehold but then lease it back to a company who let it out (for holiday lets) on your behalf. This system can give guaranteed returns and the buyer also gets the VAT on the purchase back. The owner can usually arrange to use the property for certain weeks but this of course reduces the level of the rental yield.

Legal framework
It’s possible to buy a property either as an individual or as a company. If buying as a company it’s strongly advisable to take expert legal and/or accountancy advice in advance to discuss the law and tax implications.

Finance
If you need finance the purchase there are two main options. You can either get a mortgage on the property you are buying from a French lender. Or you can get a loan on your property in your own country (if applicable) to release equity to buy the French property in cash.

Clearly if you have a loan on your French investment property you will need to balance your monthly repayments against any rental income you hope to get.

A final thought
With property investment it’s best to think long term. In a few areas prices may rise so fast that you can make a killing within just a few years. But generally with property in France it pays to be patient and plan for the future. It may not be the best place in the world to make a fast buck on property. But for security and stability the French property market is hard to beat.

This is an extract of an article which appears on the French Entrée.com website.  The full article can be viewed by clicking here.

Brits Turning to Markets Abroad

New research has stated that an increasing number of Brits are likely to buy a property overseas within the next two years.

A survey carried out by Cater Allen Private Bank revealed more Brits are turning to markets abroad due to the decreasing returns on offer caused by the ongoing downturn in the UK property market. The survey of its UK clients found that 2.3 million already own overseas with this figure potentially increasing to over 3.0 million before 2011.

The survey also found that for the majority the primary objective is investment in light of the current potential on offer in the UK.

The survey by Cater Allen has been joined by more reports in the last 7 days suggesting that over 50% of Brits would consider moving overseas with value for money, quality of life and to escape the rising living costs in the UK as some of the main reasons given.

(30.09.08) This is an extract of an article which appears on the Buying Homes Overseas website.  The full article can be viewed by clicking  here.

Global financial crisis and buying in France

They always say that in times of doubt, put your money in bricks and mortar. But what do you do when the financial uncertainty is caused by those very bricks and mortar – or in the case of American homes, clapboard?

The stock markets around the world have been jittery since the serious nature of the so-called sub-prime loan market in the US became apparent in the middle of 2007. Lenders have been told by central banks to be more careful how and to whom they lend money, while there are rumours that some banks around the world have become seriously over exposed as a result of the crisis.

But what impact will this have on the property market in France – and will investing in French real estate still make sense?

French banks
The first point to make is that French banks are generally more cautious in their lending policy than institutions in some other countries. The result seems to be that there is little sign of a serious impact on the French banking industry and lending market.

A second point is that with nervousness in the stock markets still quite high, some investors will be looking to put their money into less turbulent and more secure areas. And some experts believe that France’s stable and secure property market could be a beneficiary.

Already several reports have suggested that the wider Paris region is likely to be one of the European property hotspots in future years – indeed the market there has already been growing at between 10% and 15% in recent years. This contrasts with the more modest 4.9% growth currently seen in the overall French market.

Many observers also believe that President Nicolas Sarkozy will be able to kick-start the French economy which has been notoriously sluggish in recent years. He has set up a commission to discover those fiscal and employment factors that act as ‘brakes’ on economic growth, presumably with a view to removing them if that is socially and politically acceptable.

Vote with wallets
Already it seems that many foreign investors are voting with their wallets. For example, property investment company, VPS-Global, says it has seen a dramatic increase in foreigners investing in France.

CEO Pascal Morin believes France offers exciting potential for investors. ‘Given the current state of the world economy, investors are opting for more secure, stable and long-term investment opportunities. Investing in France used to be a lifestyle choice. Today we are seeing more and more of our clients choosing France as a pure investment choice, purchasing with no intention for personal occupation.’

Other factors that might boost demand for property in the future include beneficial changes in the French inheritance tax laws that will help many foreign tax residents in France and also, in the longer term, the extension of the TGV high-rail network to other parts of the country.

And Charlotte Clarke of Sextant French Property Agents adds: ‘France also has extremely low Euro interest rates with highly competitive mortgages, has government support - for leaseback investment in particular – and has world-famous popularity with tourists.

‘Even for those who have difficulties in selling their property in the UK prior to buying in France, there is now a short term mortgage available from French banks which allow people to move to France without having yet sold their UK property.’

As ever, location will be key. But French bricks and mortar do have a solid look to them just now.

This is an extract of an article which appears on the French Entrée.com website. The full article can be viewed by clicking here.

Property in the French Alps continues to appeal to investors

Market figures recently released for the first quarter of 2008 show positive results in the world of alpine property, with many mountain and lakeside resorts continuing to perform well. Despite the property market slow down experienced in the UK and some parts of France, property values in many resorts in the French Alps grew in the year between April 2007 and March 2008.

The French Alps is one of the most unique property markets in Europe; not only are buyers in the Alps able to enjoy a fantastic ski and summer season in their property, the Alps are also amongst some of the most environmentally protected regions of France; planning restrictions are strict and land to build on is extremely limited. In recent years this combination of limited supply and increasing demand from second home owners has driven strong capital growth across the region as a whole, in particular in the mountains. In the lakeside destinations, such as Annecy and Lake Geneva, property prices have been driven by local and international businesses attracting high numbers of buyers drawn to a lifestyle and quality of life that other parts of France and Europe simply can’t beat.

In the first quarter of 2008 resale apartment prices across the mountain resorts of Haute-Savoie increased by just over 3% and in the Annecy area the average increase was 2.5%. Some of the strongest performances were experienced by those resorts which have long been favourite property hot spots with international buyers; Chamonix Mont Blanc saw prices up by 8.9%, Morzine 10.9%, Megeve by 7.5%, La Clusaz by 7.3% and Le Grand Bornand by 13.8%. New build apartment prices are continuing to perform well, reflecting increased demand for spacious property, in good condition and with multiple bathrooms. Globally new build prices increased by 4%, with the mountains performing well at 5.6% up and the Annecy area up by 5.9%. Certain resorts in the mountains performed very well, notably Saint Gervais les Bains, with an increase of 25% and Samoens with an increase of just over 32% up. Land is still difficult to find in both the mountain resorts and the Annecy area and this is reflected with strong growth of 9.6% overall; 16% up in the Annecy area and 8.5% up in the mountains.

So why are the Alps continuing to hold their own during an increasingly difficult economic period for both the UK and the Eurozone? Firstly, French banks have always had a sensible lending policy. Buyers are legally not allowed to take on debt of more than a third of their income, ensuring that they do not over-extend themselves with their mortgage. They also need to provide a 15% - 20% cash deposit for the bank to approve their finance. The same rules apply to international purchasers, so the banks approach each loan application with these stringent rules in mind. It’s relatively rare for a French bank to repossess a home, so for their own protection the banks want to be certain that you can afford the property you purchase. Many buyers in the Alps have taken out a French loan to fund their purchase so they have been vetted and approved as being comfortably able to afford their property. As a result the problems surrounding the cancellation of attractive 100% or 120% mortgages and buyers over-extending their personal debt don’t apply here. It is also difficult to release equity on a French property and this combination of factors means that the housing market here is not experiencing the same bumpy ride as that of the UK.

Secondly, the Alps have historically had a real shortage of property for sale. Planning restrictions here are strict and little land is available for development. Home owners in this part of France tend to be in it for the long term and reluctant to part with their property – whether they are locals in a much-loved family home or affluent second home owners. Unlike the vast volumes of unsold new build property available in markets like the UK, Spain and Bulgaria, limited development in key locations in the mountains has maintained new property values. There is still a huge amount of interest in owning a property in this part of France from both French and international buyers and quality property continues to sell.

Thirdly, many properties here are second homes. Property owners are typically affluent investors who can also maximise the return on their investment through seasonal lettings. They do not need to sell because they are relocating through work or to move closer to family, so their motivations and pressures to sell are different to many other home owners. If they feel that the market conditions aren’t right they won’t place their property on the market and this further restricts available property to buy.

The current marketplace is an interesting one. Good quality property in the mountain resorts continues to be in short supply, thus holding its value and continuing to sell. High value property in the top end of the market is also doing a good trade. Older and tired property is proving slower to sell and these vendors are being more realistic about what their property is worth. Current UK property market conditions have made buyers cautious and many are adopting a “wait and see” approach. The result is a pent-up demand which will be released when consumers feel that the cycle is beginning to move upwards again. A savvy buyer would know that now is a good time to invest – when a slower market enables negotiation that wouldn’t have been possible 24 months ago.

(04.09.2008)   This is an extract of an article which appears on the ascendant-property.com website. The full article can be viewed by clicking here.

Beat the weak pound

The pound is at its weakest point ever against the euro and many would-be French property buyers are toying with whether they should hold off purchasing their desired property until the pound’s value improves. But with the French property market yielding such great prices at present – prices that property experts believe will increase by up to 15% in the most popular areas over the next year – it would be a shame for investors to miss out on that idyllic French retreat.

The currency exchange rates in the Eurozone are 4.37% against 5.5% in the UK (at the time of writing) and the potential conversion losses make the prospect of buying French property appear even more expensive. There may, however, be a solution to minimize the effect of the weak pound when purchasing in France, and it comes in the form of a Euro Mortgage.

So if you are someone discouraged by rising UK mortgage rates and the weak pound, but have the desire and cash to buy in France, your best option may be to leave the majority of your sterling in the bank and take out a Euro Mortgage with a substantial deposit. Mortgage advisors are recommending that buyers seriously consider this option because it is now possible to obtain a French mortgage without an early redemption penalty, and thus, after a minimum of 12 months, buyers have the option of paying off mortgage and taking advantage of potentially improved currency exchange rates. On the other hand, buyers who need a long term mortgage could take out a mortgage with a short first term of perhaps two years and at its expiration change to a UK mortgage if the pound has recovered against the euro.

A considerable benefit to obtaining a Euro Mortgage is the fact that buyers need not pay for the property in its entirety in sterling: buyers only need to buy enough euros to pay the deposit and transaction costs. As for the monthly repayments, they are relatively small and spread over a long period.

The message here is that a Euro Mortgage is a feasible solution for cash buyers worried about the current value of the pound but who believe that it will recover. Further still, if the pound does not recover, buyers will still have beaten its weakness, and the Euro Mortgage would in fact be an even more attractive and cost-effective option: repayments will decrease until you are ready to pay the mortgage off completely, and you would have bought your French property at a time when their prices are very reasonable – an average 48% lower than UK property.

This is an extract of an article which appears on the French Entrée.com website. The full article can be viewed by clicking here.

What "Credit Crunch" ?

The recent “credit crunch” has affected many of the property markets across the globe. It is now almost taken for granted that property prices are going to continue to fall throughout 2008 in the United States, United Kingdom and Spain. The question a lot of property investors are now asking is where is the best place to invest?

The Alps

To answer this question we first need to look at what is causing property prices to fall.

In the US, money has been lent too freely for too long, which has resulted in the problem that we now call “Sub Prime”. In effect, millions of homeowners are now unable to pay back their mortgages, as a result there is now a glut of properties coming back onto the market and property prices are falling. As prices fall, banks become less keen to lend money to each other, and to potential clients. The result of this is property prices in the US have fallen by a staggering 16%.

The problem in the UK is that banks are worried that the UK economic climate resembles the US a year ago, and as a result are removing many of the mortgage products that they used to offer. This is resulting in less demand and it is becoming a self-fulfilling prophecy as prices start to fall. Property prices are 3.8% lower than a year ago and falling.

Spain, on the other hand, has been hit with a double whammy, not only has it been effected with the “credit crunch”, it has also had an oversupply of properties being built. Spain’s market is also over dependent on overseas buyers, most notably the British. This has resulted in property prices falling by 15% over the last year!

Why is France a safer market and why does it not have the same problems?

Firstly, French banks have always been more prudent with their lending, up until the beginning of this year French banks would only lend to clients who put down a minimum 25% deposit. They also only lend to clients whose outgoings do NOT exceed a third of their income.

Secondly, it is estimated that France needs to build 500,000 houses a year to meet demand. Last year only 435,000 houses were built, but that figure will fall this year as construction companies struggle with rising costs.[1]

Thirdly, due to higher purchasing fees in France there has been less speculative buying.

France is a far more robust market and the latest figures from FNAIM, the largest body of French estate agents, reported that property prices in France rose 3.1% in the first quarter of 2008. This may well not continue through the year but it is certain that the price falls being seen in the UK and Ireland will not be replicated in France.

To conclude, if you are looking for a safe investment then France is the place to buy.

[1] http://www.tourisme.gouv.fr/fr/z2/stat/tis/att00015987/TIS_2007-2.pdf

The full article can be read here