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 buying investment property in France.
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.
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.
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.
The old cliché, but it really is as important as it’s ever been when it comes to buying an investment property. There are two main issues when it comes to location. One is the general area of France you are buying in – is it a good one for investment?
The second one is the specific area of the property. Is it near the facilities that future tenants/buyers will want or need? What are communications like – both for overseas people and local residents. Consider high-speed trains – the TGV – airport and motorways.
Think too about the weather, schools, hospitals, planned developments in the area, rubbish dumps, nuclear power stations and the availability of high-speed internet. The mairie is a good place to start to find out about local plans in your area.
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. See our Mortgage zone for more details.
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.