Tuesday, December 29, 2009

A good time to invest in French property?


The French financial magazine Capital has devoted a large part of its January 2010 edition to the subject of savings and investments in a time of 'crisis' - including property.

Among the property investments surveyed are various schemes available to French taxpapers, which generally link the purchase of a (new) property to a six or nine year rental agreement, which is invariably capped in order to assist low-income tenants. Anticipated returns are estimated at between 3% and 4.5% and there are attractive tax savings for higher rate tax payers. Outside these schemes, a good investment in a new or older property can produce up to 7% according to the magazine.

However the magazine's advice is unequivocal for investors seeking an equivalent or higher return:

"The best returns come from older properties, provided you invest in a major city such as Paris, Lyon or Marseille, and choose a high quality, well equipped studio apartment, designed to accommodate visiting executives for a week or longer. Returns can exceed 8% including tax advantages".

Investors need to factor in financial costs, maintenance and refurbishment, building charges, local taxes and the costs of using a rental agency. In all cases it essential to to visit the proposed investment and the area where it is located, and investigate actual rentals received for similar properties.

Main source: Capital, January 2010.

Auto-entrepreneur with Nil turnover?

From recent reports, it seems that an unexpected number of people registered as 'auto-entrepreneurs' during 2009 have declared a Nil turnover for the fourth quarter running - and questions are being raised about their social security cover in view of the absence of payments to the various collection agencies responsible for health, pension and other insurances (RSI, CIPAV etc).

The collection agencies, faced with this un-anticipated problem, appear to have adopted a 'wait and see' attitude, but a report by an English speaking website* says that auto-entrepreneurs with a Nil turnover are now being automatically switched to other regimes (such as micro-social or micro-enterprise), some with obligatory levels of minimum social contributions, or advised to terminate their auto-entrepreneur status.

It has always been stressed that the auto-entrepreneur scheme was never intended as an alternative route to obtaining French social security cover for those not already working or retired in France, or operating a genuine business with a realistic turnover. It is also particularly suited to those with another permanent job but wishing to earn some additional income or try out a hobby or business idea before going solo.

(*Start Business in France).

Tuesday, December 15, 2009

Outlook for estate agents in France



According to the French government statistical office INSEE, there are currently some 40,000 estate agencies operating in France - more than three times the number in Britain. About half of them belong to one of the principal professional bodies FNAIM (12,500 members) or SNPI (9,500), although all are obliged to be licensed by the departmental Préfecture and must hold a 'carte professionnelle' covering either transactions (T) and/or property management ('gestion') (T & G).

French estate agencies are highly regulated under the 'loi Hoguet' of 1970/72 and must for example hold adequate professional insurance, with additional guarantess required if they hold client funds, such as the usual 10% deposit payable when you sign the pre-contract ('compromis de vente') to buy a French property. Some agents choose not to hold client monies which then become payable direct to the Notaire handling the transaction and are lodged in a special government controlled account.

Every property offered for sale by an estate agency must be the subject of a mandate - a written contract between the owner/vendor and the estate agency, authorising it to market and sell the property. A vendor may sign non-exclusive mandates with a number of agencies or prefer to sign an exclusive mandate with a single firm.

Agencies are free to set their rates of commission which must be displayed at their premises, and which can range from as little as 2% to 10% depending on the value of the transaction. The rates are higher than those normally encountered in Britain.

Despite the proliferation of estate agency groups such as LaForet, Orpi, Guy Hoquet and Century21, around 90% of French estate agencies remain independent. Each of the major groupings has between 300 and 800 franchised local offices.

FNAIM estimate that 60% of transactions annually pass through an estate agent (70% of these through independent firms), 35% are private sales from one individual to another, and the remaining 5% are handled by Notaires and others authorised to transact property sales.

Figures from Britain indicate that more than 1,000 of the estimated 13,000 agencies have closed in recent months, with an average loss of employment of four staff per office. The staffing situation is more fluid in France (one of the sector's weaknesses), with many staff employed as 'agent commercial' by the agency - a loose arrangement whereby the commercial agent relies on the agency for his/her professional card, but remains independent and responsible for paying his own tax and social security and operating costs. Remuneration is by commission only and in difficult times, many do not survive as a result of lack of income from sales.

While anecdotal evidence indicates that many French agencies have been forced to close offices, including some operated by the major groupings, the actual loss of employment is more difficult to estimate as a result of the widespread use of commercial agents, which often results in high turnover of staff and lack of continuity for clients.

In my own region, one of the largest firms with four branch offices has remained independent since its foundation 50 years ago, and until last year was managed by the original owner. A second old established firm has alas been bought by a subsidiary of Banque Populaire.

Takeovers are not always popular among potential vendors and existing clients of a locally established agency, as was the case in Britain some years ago when banks and insurance companies moved into the estate agency sector, lost money and frequently sold back the agencies to their previous owners at a heavy discount. It will be interesting to see how the situation evolves in France.

Saturday, December 12, 2009

French property - a sound investment long term

According to a recent survey in the French business magazine Capital (December 2009), the values of property in virtualy all the popular destinations favoured by overseas investors have suffered a double digit decline in value during 2009 - with the exception of France.

Within two years France's neighbour Spain has seen average prices drop by 30% (average price now around 2,200 euros/m²) while Portuguese property buyers have watched their investment decline in value by 15%. Among the other traditional European destinations, Italy has fared better with average price reductions of just 5 - 10 per cent, although in Greece the drop in value is generally closer to 20%.

A number of the more exotic markets, recently promoted as the new eldorados for overseas property investors, have come off worst. The hardest hit include Florida (USA) with a spectacular 45% price falls, and most recently Dubai (40 to 50% with further falls predicted). While in Eastern Europe, Bulgaria has seen prices drop by 25% in a single year and in Croatia - despite its 11 million tourists annually - average property prices have fallen by 20 - 30% since 2008.

In marked contrast, France's larger and more mature property market has not suffered a similar decline in property values, despite showing a slight slowdown during 2009 of the steady increase in values recorded over the last 15 years. This is due not only to the cautious lending policies of French banks but also to relatively high levels of capital gains tax payable on second-home properties bought and sold within 15 years.

France also enjoys a traditional culture in which property is seen as a long term commitment rather than a short term investment, with many properties handed down from one generation to the next. As a result the present economic uncertainty has led to a stagnant market (now showing the first signs of revival in December 2009) with owners reluctant to sell at knock-down prices and buyers playing a game of wait-and-see.

Government predictions indicate a need for around 500,000 new dwellings annually for at least a decade, as the country urgently renews its housing stock and France's baby boomers born in the 1950s approach the age of retirement.

Friday, December 11, 2009

French Property News - December

In this month's issue I write about the role of the 'syndic', the professional managers responsible for running a co-ownership property such as an apartment building, and appointed by the owners. The article describes how the syndic works, what typically happens at the annual general meeting of owners, voting procedures, the role of the residents' committee, how the budget is arrived at and costs allocated, and some typical problems that can arise. Also issues such as repairs and maintenance, what you can and cannot do inside your own apartment, outside painting of the facade, building insurance and much more - all based on real life cases.
www.french-property-news.com

Friday, December 4, 2009

French report predicts 50% homeworking by 2020



A report from the French Prime Minister's office, published this month, predicts that as many as 50% of jobs could involve home-working within 10 years.

These predictions are surprising in view of France's relatively slow adoption of home-working or tele-working, which is well established in Britain, USA and many northern European countries, and relies on ideas that were originally promoted in the 1960s. The concept was initially boosted by advances in technology - the availability of the first home computers in the 1980s and public access to the internet in 1983.

Since then numerous social and economic advantages have been claimed, including job flexibility (part time working, self employment, job sharing, working in retirement, accessibility for handicapped etc), an improved work/life balance, reduced stress, and reduced commuting and its positive effects on the environment. Home working has been found to be particularly attractive to groups such as working mothers, who can combine a professional career with bringing up children - without the need to pay for expensive childcare services.

Among the restraints cited in the French report are management attitudes to home working, resistance by trade unions, concerns about job contracts and home safety, and poor quality electronic infrastructure. France also has the lowest level of employments among seniors (aged 55 - 64) at under 40% compared with Sweden's 70% and 62% in USA and 58% in Britain. The idea of working in retirement is virtualy unkown and until recently penalised by the social services, while both managers and seniors themselves consider they are too old to learn the new technology.

The Report cites the example of British Telecom where 64% of jobs are 'flexible' and 12% of employees work at home. This is in marked contrast to France Telecom, currently in the throes of privatisation after many years as a public service, and where up to 30 suicides have been reported among staff.

In conclusion, the Report cites some recent boosters to the idea of home-working and tele-working. They include the economic crisis, which as led to reductions in business travel and the use instead of tele-conferencing, and the cost of acquiring, renting and equipping business premises. Another factor has been reaction to the current 'flu epidemic which has necessitated the closure of offices and schools, with many institutions surviving by means of tele-working.

Relating all of this to the property sector, it is noteworthy that almost all new-built properties now include a 'home office' or work space in their specification.

Source: Prime Minster's Office - Centre d'analyse stratégique, November 2009.

Tuesday, December 1, 2009

Auto-entrepreneurs - encouraging news

Although the French have come slowly to the idea of self-employment, the good news is that the 'auto-entrepreneur' scheme launched in January 2009 continues to show every sign of success.

Figures just issued by the government show that the average monthly revenue per auto-entrepreneur indicates a steady rise, with an average of 1,330 euros per month for the 60% of registered auto-entrepreneurs who have filed their quarterly tax returns.

Although this figure may seem modest, it nonetheless represents nearly half of the allowable income of 2,750 euros monthly (or 34,000 euros per year) for services and liberal professions - not bad for new-start businesses, many of whom were not able to register under the scheme until April or have registered later in the year as the idea of self employment has gained in popularity in France.

When launching the scheme, the minister in charge of small business M Hervé Novelli said he imagined it would be used by many people part-time 'as a means of balancing their end-of-the-month budget' which appears to be what is happening.

Friday, November 27, 2009

Unable to complete on a purchase



An interesting case has occurred recently involving a British buyer of a French off-plan property. When completing the purchase document (initial 'compromis de vente') he stated that he would not be seeking a bank loan or mortgage to pay for the property. As the purchase relied on payments over time, in this case two years, he felt, in good faith, that he would be able to fund the stage payments from income, without the need for a loan. Normally payments are invoiced at intervals, as the work progresses - from foundations to fitting-out and hand-over, typically over a period of 24 months construction.

Unfortunately the recession arrived and the buyer found himself short of cash and unable to complete the stage payments, while on the French side the building work was gradually completed. The developers are now seeking payment in full of the sale price and the buyer is unable to pay - a sum approaching 300,000 euros.

The would-be purchaser has reached an agreement with the developers to try and sell the property (of which he is technically now the owner) at a heavily discounted price, in order to cover the deposit already paid and recoup any losses. Failing which it is likely that the developer will insist on payment in full and will pursue the buyer through the French and British court systems (a relatively simple process following recent EU harmonisation of the applicable laws).

There are several lessons to be learnt from this story, the most important being to have funds in place or formally agreed before committing to a property purchase; and second, should problems arise, to notify the vendor (in this case the French developer) of your changed circumstances and try to arrange re-financing of the purchase.

Tuesday, November 24, 2009

Non-resident selling French property

If you are not fiscally resident in France, selling your French property - such as a second home, holiday home, rental investment - will in certain circumstances attract capital gains tax on the profits of the sale. Profit is defined as the difference between the price you originally paid for the property and the price at which you sell it, subject to certain abatements, such as the costs of acquisition (agents commission, notaire's costs, architect's fees etc) and certain building improvement works certified by registered artisans (with an automatic allowance of 15% if the property has been owned for more than 5 years).

If the property has been owned for more than 15 years (even as a second home) there is no CGT to pay. During the first 5 years of ownership, CGT is paid in full on resale, but is reduced by 10% per year in years 6 to 15 of ownership, finaly reducing to zero after 15 years. A property that is considered to be your 'main and principal home' is not subject to CGT on re-sale, provided the Notaire and the French tax authorities are satisfied as to your status as a French resident. The rules are complex but are based on the concept of your principal 'centre of interest' - the place where you and family live, possibly work, for most of the time.

A further complication for non-residents attracting CGT on the sale of their French property is the requirement to complete a form 2090 and appoint a French accredited fiscal representative in France, who is responsible for ensuring that the taxes are paid. This can be a private individual or one of a group of specially accredited companies that will undertake this task for a fee.

The rules have been recently amended, allowing a dispensation for low value properties that are individually owned, and in some cases it is possible for the non-resident vendor or the Notaire handling the transaction to negotiate an arrangement with the French tax authorities, whereby CGT and any other taxes are calculated and paid over promptly on completion of the sale. There are different rules for properties owned by an SCI or a company, and professional advice should be sought.

The rate of CGT is currently fixed at 16% plus in some cases an obligatory social charge of 10%, and applies to French and non-French owners selling a property that is not designated as their 'résidence principale' and which has been owned for less than 15 years. The French Notaire, in his role as tax collector, is responsible for calculating CGT payable and agreeing his calculations with the French authorities, before transfering the remaining balance of the sale proceeds to the vendor.

Tuesday, November 17, 2009

French expect 500,000 new business creations in 2009

Further signs of confidence in the French economy, as the government anounces record numbers of new business creations in 2009 - 54,000 of them during October alone.

M Hervé Novelli, secretary of state for small businesses and the promoter of the French auto-entrepreneur system, declared that he is delighted with the figures, as of the half-million new enterprises anticipated for 2009, some 231,000 have already chosen the new simplified auto-entrepreneur status - a self-employment regime under which tax and social security charges are payable only against actual income received, as opposed to estimated charges applicable in most other French business regimes.

According to APCE*, the new regime is popular with young people, particularly students, with 70,000 under 30 years of age declaring they are ready to launch their own enterprise. Another survey indicates that 85% of new enterprise creators are happy with their new status as auto-entrepreneurs.

The total number of new auto-entrepreneurs is expected to exceed 300,000 by the end of 2009, against earlier predictions by Noveilli's office of just 200,000 by December.

Source: Le Figaro, 16 November 2009. APCE* = Agence pour la Création de l'Emploi.

Monday, November 16, 2009

Property searchers - who are they, can they help?




In recent years a new breed of individual has made an appearance on the French property market - the independent property searcher, in French the 'chasseur de biens'. Essentially, he is someone who will take over the hassle of locating properties that meet a client's specific brief and present a short-list of those he thinks are eventually worth visiting by his client, the potential buyer. The idea is to save time and money that can be wasted in fruitless visits, particularly by someone new to a region or who does not speak fluent French, and relies on the searcher's intimate knowledge of the local property market, and his contacts with estate agents, notaires and private individuals who may have suitable properties for sale.

What is the status of the property searcher and how is he remunerated? The French estate agency business is a 'controlled occupation' regulated by a law - the loi Hoguet - that dates back nearly 40 years to 1972. This fundamental law has however failed to keep abreast of changes in the way that properties are bought and sold, notably widespread use of the internet to search for and sell property, the appearance of specialist publications addressed to private buyers and sellers (responsible for half of all French property transactions), and the role of the property searcher.

Property searching has traditionally been seen as part of the job of the French estate agent, who must continually replenish the supply of properties he has for sale, and accordingly is subject to the loi Hoguet. The law requires among other things the possession of a 'carte professionnelle' issued by the local Prefecture, proof of experience or competence, and minimum financial guarantess covered by insurance. The licensed estate agent must also hold a valid mandate from the owner, authorising him to market and try and sell any property on his books. Many agencies now also describe themselves as 'property finders' and try to give the impression that this job can only be done by someone operating under the loi Hoguet. This is in fact not true.

Independent property searchers
The situation of the property searcher has changed dramatically following a relatively unknown ministerial statement of August 2008.

In an attempt to define the status of the independent property searcher, the French justice minister ('la garde des Sceaux'), in a ministerial reply, stated that:

'if the role of the property searcher is strictly limited to the service of finding a property, and it is paid for directly by his client ('mandant'), then this activity falls outside the restrictions of the loi Hoguet of 2 January 1970 which regulates the estate agency profession, and of the decree of 20 July 1972' (Réponse ministérielle, question no. 20525, Journal Officiel AN 12 August 2008, p. 6987).

This reply has since come in for some criticism, largely by bodies representing estate agents anxious to defend their protected status. And at least two of the bodies representing 'property searchers' have made possession of an estate agents licence a necessary pre-requisite for membership, citing the loi Hoguet.

What this does of course is to try and keep the role of property searching within the traditional estate agency structure, where opponents argue that the agent necessarily represents the interest of the vendor in a property transaction, while the truly independent property searcher works exclusively on behalf of his client, the buyer.

In practice, French estate agents seem to be creating a new role for themselves - at an additional cost to the client/buyer - when it is merely an extension of something they would normally do when presented with a potential buyer - someone who arrives at their premises and expresses his interest in a property offered for sale in the agent's catalogue. If the agent does not have a suitable property to offer, his next step is to contact colleagues (often within a formal network or grouping), and in the event of a sale, he will share a commission with the partner agency. This is not property searching, but standard estate agency business practice. I speak from experience.

The truly independent property searcher will argue that he has access to the same sources as the agent but his role is more closely defined - he works to a brief from the client/buyer and will often reject 50% or more of the properties proposed by the agent as not worth including on his client's short-list. His remuneration does not depend on a property sale.

A possible criticism of the ministerial reply noted above is that it did not define more clearly the role of 'negotiation' or 'intervention' (the French word is 'entremise') within the context of a property transaction, an activity that has traditionally been regarded as coming strictly within the ambit of the loi Hoguet. In practice it is difficult to rule out entirely the role of 'advice giving' by the property searcher - for example he may reject some properties during an initial search because he considers they are over-priced and will tell his client so. And if he receives part of the selling agent's commission, can he be truly regarded as independent and acting in the best interests of the buyer, as well as possibly breaking the law?

The 'agent commerial'
Despite the all-pervading influence of the loi Hoguet, the French estate agency business suffers from a number of inherent defects, particularly concerning the role of the 'agent commercial' - some of whom use this ambiguous status to act as property searchers. The 'agent commercial' depends for his legitimacy, under the loi Hoguet, on a loose association with an agency, for whom he acts as a sales representative, and once in possession of special 'carte professionnelle' can also mandate properties for sale (ie take them onto the agency's books).

Problems can arise where the 'agent commercial' operates unsupervised and more or less independently of the agency that has given him his 'carte professioonnelle'. Or in some instances when he is a member of a loose network of affiliated property agents/searchers, which relies on a licence granted by a remote Prefecture in another department of France.

Our position
Proponents of the protections offered by the loi Hoguet cite the competence of agents and their staff, and the presence of financial guarantees. However the latter can be as low as the minimum 30,000 euros currently required, even for a network that sub-licences its members. Many truly independent property searchers offer a superior level of competence (such as a law degree) and considerably higher levels of insurance cover (£250,000 cover + £100,000 legal costs is not uncommon).

In examining French law and deciding our own position, my firm has taken the view that in order to remain truly independent and fair to our clients, in the area of property searching we would operate strictly within the terms of the 2008 statement cited above - that is, being remunerated by our client and not accepting commissions from estate agencies, as explained in our terms of business. It was not an easy decision, particularly in view of the many 'free' property finding services currently offered by estate agents and others.

However, we see this as the only legitimate way to propose our independent professional services and reflect the true added value of the range of expertise that we bring to the French property buying process. I am pleased to note that one or two other independent property consulting/search firms have reached the same conclusion.

Wednesday, November 11, 2009

SIREN, SIRET numbers

Correctly registered French businesses can be identified by their SIRET and SIREN numbers, which are created when the (new) business is established.

Registrations are handled either by the CFE ('centre des formalités des entreprises') at the local chamber of commerce or the 'chambre des métier' for occupations classed as 'artisanal'. There are also special CFEs for some occupations such as commercial agents among others. In the case of the new 'auto-entrepreneur' (self employed) regime, declaration of the start-up of the business can be made using downloadable forms. See the website www.auto-entrepreneur.fr for more information.

Once the registration formalities are completed, the CFE forwards the documents to the tax office, social security etc, and eventually the new business will be issued with an identifying code, known as its SIREN (9 digits) and a SIRET number composed of the SIREN plus a further 5 digits, identifing the place(s) where the business operates. This information can be used to find information about a registered business using the site www.infogreffe.fr - similar to checking the UK Companies House online.

If the business operates under a TVA/VAT regime, it should also be issued with an Inracommunautaire TVA number which is made up of part of the SIREN plus an 'F' country prefix for France.

French business occupations are also classified nationally by code numbers, known as the APE code appropriate to their activity, but this is largely for statistical purposes.

Saturday, November 7, 2009

UK will could soon override French succession rules?

Good news indeed for British expats resident in France and concerned by France's antedeluvian system of inheritance laws. Under current legislation, British and other foreign owners of French property are forced to comply with complicated rules of inheritance, that closely define who can inherit their French property and which penalise bequests to those outside the immediate family.

All this could soon change, according to a report in November's issue of the English language newspaper The Connexion, if Community members accept proposals adopted by the European Commission, under which a will could decree that the deceased's estate be dealt with under the laws of their nationality - such as a British person living in France, or a British resident owning a property - such as a second home - in France.

This would bring France into line with other European countries where successions involving property are dealt with under the (deceased) owner's national legislation. It would also affect the many French citizens living in Britain and owning property there.

However the brief statement from the European Commission on 15 October somewhat confusingly adds that 'the measure wil not affect inheritance taxes, which will continue to be covered by national law, as will issues such as who inherits and how survivors share assets'.

Adoption by the European Commission is the first stage in the new legislation becoming EU law, and would be followed by national enabling legislation in order for it to become law in each Member State.

Source: The Connexion, Issue 85, November 2009. www.connexionfrance.com

Wednesday, November 4, 2009

French interest rates down again in October



According to a report by the French Obsevatoire du Crédit Logement, average interest rates offered to borrowers in October were 3.80% against 3.93% during the third quarter of 2009. Some 82.8 billion euros were lent during October to property buyers, and early 86% of all loans proposed were are rates between 3.5 and 4.5%.

The average length of the loan period is now 214 months (just less than 18 years), though slightly higher at 239 months (nearly 20 years) for new-builds and 227 months (just under 19 years) for older properties.

At the same time, further encouraging news from the European commission confirms that Europe is slowly rising out of recession, following a similar trend in the USA, thanks to measures taken by the European Central Bank, European governments and national banks. The Commission's Economic and Social Affairs spokesman Joaquin Almunia stressed however that further actions are necessary to control 'bank excesses' and in future 'to avoid their damaging effects on public spending, jobs and potential growth'.

(Source Le Figaro, 3 November 2009)

Friday, October 30, 2009

France needs to build 500,000 new dwellings a year

In a recent interview with Capital magazine, Alain Dinin, MD of the French construction group Nexity, agreed with the government's view that France needs to build at least half a million new dwellings annually to cope with demand resulting from the country's population increase and the rise in divorce and newly re-constituted households. Of these 140,000 would be in apartment blocks and the remainder divided between individual dwellings and social housing.

Nexity is one of France's largest developers, and as Dineen points out, has managed to survive the current slowdown as a result of the France's policy of selling at least 50% of each new development before even the foundations are laid. This, he notes, is in contrast to the position in Spain where speculative blocks have been built before a single apartment was marketed or sold, leaving the country with a glut of empty high rise buildings. 'In France, we only sell off-plan in the case of new build properties' he stresses.

Dinin estimates that the 2009 will see around 90,000 order's for new-build dwellings, just 10,000 ahead of 2008, but less than the 127,000 sales recorded in 2007.

Although the government has set targets for annual energy consumption to be reduced to 50kW/m² per year (against today's 150), Dinin argues that these changes will take time as manufacturers develop bew building materials and construction methods, citing the end of 2012 as a reasonable timescale for implementation. He notes however that France has been relatively slow in building newstyle eco-homes and cites a recent visit to Lille to open six new buildings, which was followed a few days later by a trip to South Korea where 15,000 new energy saving homes were launched onto the market.

Dinin also notes that while 77% of French people already live in towns, they will be forced to travel longer distances to and from work - creating an extra cost burden for infrastructure - if too many people choose to live in a typical house-with-a-garden in the subsurbs, as opposed to a multi-occupancy apartment block. Given the high cost and scarcity of land aroound France's major cities, building apartments he argues is an more cost effective solution to the country's housing problem. With restrictions on building more than five storey's, Dinin points out that with ten storeys, you could double the number of apartments, on the same amount of land!

Source: Capital, November 2009 pp 7, 9.

Wednesday, October 28, 2009

The syndic - apartment owners have wide choice



With some 2.8 million French co-ownership properties managed by professional organisations ('syndics'), owners are faced with a wide range of options when selecting the managers of their building. Only the smallest multi-occupancy buildings are run by a group of volunteers, and most opt instead for some kind of formal arrangement in order to cope with the complexities of insurance, maintenance, planning applications, upkeep of the common parts, collecting the annual charges and mediating between neighbours.

Traditionally much of this work has been done by local estate agents whose licence ('G') enables them to offer the services of professional building management ('gestion'). Inreasingly however, banks and other financial conglomerates are moving in this (lucrative) area and among the largest are companies such as Foncia (Banque Populaire), Lamy (Nexity), Urbania, Immo de France (Procivis), Icade (CDC), Tagerim etc. Some of these groups have taken over small local firms - reminiscent of the days when British banks and insurance companies moved into the estate agency sector, and subsequently withdrew after incurring heavy losses.

There has been some dissatisfaction expressed by owners about the loss of the local company presence and the large groups are not always popular, due to their appearance as remote and impersonal. A number of problems were highlighted in the April 2009 issue of the French consumer magazine '60 million consommateurs'.

Apartment owners have considerable power and can use the annual general meeting to vote the professional syndic out of office, and in all cases it is their vote alone which decides how much or how little can be spent in the comming year, and which determines the future of the building they part own through their shares.

Tuesday, October 27, 2009

French property prices inching upwards



A report by French estate agents body FNAIM notes that average property prices are starting to recover some of the 7.8% losses of the last twelves months, and are now up by 2.8% in September 2009, with expectations of an overall recovery in the French property market in 2010, as widely forecast by many commentators.

There are signs too that despite their traditionally cautious lending policies, French banks are now more readily offering euro-currency mortgages of up to 100% to British buyers, thus helping to offset difficulties associated with a poor pound to euro exchange rate. Interest rates of around 4% or less can be expected, with terms ranging from 15 to 25 years. Monthly repayments should not normally exceed one-third of income after deducting fixed costs.

While there are undoubtedly bargains to be had, wide variations can be expected, depending on the area and type of property. The Mediterranean coast has generally experienced only marginal price reductions, due to the high percentage of second homes, which owners tend to withdraw from the market rather than sell at knock-down prices.

There is a shortage of modern (less than 20 years old) holiday homes in the most sought-after areas close to the sea and around the marinas and leisure ports such as Argelès and St Cyprien, close to France's southern border with Spain.

Saturday, October 24, 2009

Cost of running a business in France

France has the reputation of being a country of high taxes compared with its European neighbours. It is certainly true that although income tax is low - 50% of the population do not pay any - social contribitions are relatively high for employers, employees and the self employed. However, in return the health and social security systems are extremely generous in terms of medical care, nursery, primary, secondary and university education, unemployment benefits and assistance to job-seekers.

Recent figures show that overall contributions including income tax, local taxes and social contribtions equal 43.5% of GDP, compared with 36.5% in Britain, 34.8% in Germany and just 27.3% in the USA where the level of social care is probably the lowest in the world.

All governments attempt to strike a sometimes delicate balance between the requirement for revenue and the amount of taxation the population will tolerate. Where this balance is perceived to be unfair, tax evasion will increase. France's underground economy is currently estimated to represent nearly 15% of the country's GDP, just behind Spain at 23%, but on a level with Germany. Figures for Britain are 13% and for the USA 8.8%.

The figures include under-declaration and concealment of income by 'legitimate' businesses and individuals, as well as earnings from drugs, trafficking and prostitution. Revenues from these activities in one year could wipe out France's social security deficit, leaving an additional 10 billion euros to spare.

Although there are strict laws applied to French taxpayers governing payments in cash up to a mximum of 3,000 euros, a recent report demonstrated that the rules are frequently ignored. Among the cases investigated were removal firms, dentists, fashion stores, cosmetic surgeons, garages, artisans - and psycho-analysts!

Source: Capital, October 2009, pp 63-64.

Wednesday, October 21, 2009

Cooling-off period when buying French property



One of the many protective measures built into the French property buying process is the right of the buyer to withdraw from the transaction within seven days of receiving or signing the initial purchase contract or 'compromis de vente'. All the prospective buyer has to do is notify the vendor or the agent of his intention not to proceed. When buying through a French agent or Notaire, the seven-day period starts from the day after reception by registered post, at the buyer's home address, of the 'compromis de vente'.

If an initial deposit has been paid to the agent or French Notaire handling the transaction, this must be returned within a maximum of 21 days.

The 'compromis de vente' can include a number of conditional clauses - known as 'clauses suspensives' - agreed between vendor and purchaser. If the purchaser intends to buy the French property by means of a loan or mortgage, he is allowed a further six weeks right of withdrawal ('delai de rétractation') to allow time to search for, consider and accept the formal offer of a loan or mortgage.

During this period, the transaction is virtually on hold, and the property is withdrawn from the market. During the six week period, the prospective buyer must demonstrate due diligence in seeking a loan or mortgage, and must keep the parties informed of progress. He cannot sit back and do nothing, and then announce his intention to withdraw, without risking financial penalties.

Financial penalties can include forfeiture of any deposit paid (usually 10% of the sale price), payment of the estate agent's commission and/or a payment in compensation to the vendor. Difficulties can arise where the buyer is dilatory in obtaining the mortgage and does not inform the parties of what is going on.

Faced with competing offers from, say, a buyer offering cash and one seeking to purchase by means of a mortgage, a vendor may prefer the cash buyer, because of the potential consequences of the six-week delay before the transaction can proceed - or not - to completion. 'Cash' in this context refers to funds in place that will be transfered by the buyer's bank to the Notaire's special sequestered account prior to completion.

Potential buyers are advised to have an outline offer in place when seeking to purchase French property and will improve their chances of negotiating a good price if they can provide a letter of confirmation from their bank or mortgage provider.

Saturday, October 17, 2009

A tenant's right to buy or 'pre-emption'

If you own or are thinking of buying a French property that is occupied by a tenant, then you need to be aware of what rights the tenant has to buy the property he/she occupies.

A tenant can at any time ask the owner if he can buy the property. The owner can refuse and even sell the property to another person, who will inherit the tenant and any existing lease. But in three situations, the tenant has a right of pre-emption:

(1) When the owner informs the tenant of his intention to sell, by sending a notice 6months in avance and proposing a price. The tenant has then 2 months in which to respond, 4 months if he has to arrange a mortgage or loan.

(2) When a property, typically an apartment is first incorporated into a co-ownership arrangement, and the lots are first offered to the existing tenants.

(3) When a building of more than 10 apartments is sold en bloc or split up. In the latter two cases, the sitting tenant has 2/4 months to respond, otherwise the apartment is sold 'occupied' by the tenant as before.

In all three cases, the owner cannot by law sell to a third party at a price less than that offered by the tenant.

Friday, October 16, 2009

When to use a 'géomètre expert' ?

When buying land in France there are a number of situations when it is advisable or even obligatory to commission a 'géomètre expert' to measure and mark the boundaries of the property.

When buying a parcel of land in a 'lotissement' (housing estate) from a developer, this will have been done already and the boundaries clearly marked and expressed in square metres when setting the selling price of the parcel of land.

The seller of an isolated plot of land has no obligation to have the boundaries marked but must inform the purchaser whether this has been done or not. Without precise marking, it is impossible to define the exact boundaries of the land - something that is important if you plan to construct a building close to the boundaries as this will be subject to strict norms regarding distances from a neighbour's property. In some cases, a contravention can result in an order for the building to be demolished.

The boundaries marked on the local 'cadastral plan' can sometimes be out of date and inaccurate, and cannot be used in evidence in the case of a legal dispute. The purchaser is therefore advised to have an accurate survey done by a 'géomètre' in order to establish the precise boundaries of the property.

In a recent case, a litigious neighbour insisted that a brick garage be 'moved' as it was a few centimetres too close to his property. And in another, mains services that were described as 'on the boundary of the property' were found in fact to be 30 metres away, leaving the owner with a considerable bill to have then connected to his property. In this case, all parties were relying on an out of date 'cadastral' plan provided by the Mairie! It may require a court case to establish who was responsible for the mistake, should the new owner wish to recover his costs.

Thursday, October 15, 2009

Power of attorney - when to use?

Questions are sometimes asked about when is it possible to sign French property purchase documents using a power of attorney - and whether it is okay to do this at the time of the pre-contract ('compromis de vente').

In replying to this question recently on a French discussion forum, I cautioned against using a power of attorney at the time of the 'compromis de vente'. This document is very much the key to the property purchasing process, as it sets out the terms and conditions under which the buyer will buy, and the vendor will sell, the property in question. It is in a sense an 'agreement to agree' (not strictly recognised in English law) and the final sales act signed on completion will include all the elements that appeared in the initial 'compromis'.

The 'compromis' can also include a number of conditional clauses (known as 'clause suspensives') agreed between purchaser and vendor, and if any one of them is not fulfilled, the purchaser can withdraw from the transaction. Typical 'clauses suspensives' include buying subject to a survey, subjet to planning permission or subject to the buyer obtaining a bank loan or mortgage.

It is important that the purchaser fully understands what he/she is signing and it is wiser to go through the document in detail and in person with the agent handling the sale or the French Notaire who will oversee the transaction. Simply having the 'compromis' translated and explained by a third party - such as a UK based lawyer - is in my view of limited value, and not an effctive substitute for having someone in place who knows the property and may be aware of elements that may not appear on paper.

Clearly the potential buyer should visit the property and its vicinity and be satisfied as to what he is buying - you buy a French property in the condition in which you find it. That said, advice and guidance given on the spot can often be of more value than a precise translation of a written document that is presented to you for signature.

Wednesday, October 14, 2009

Building near a historic monument?



Proposals are before the French parliament to ease the potential restrictions when applying for planning permission to build or renovate a property that is located close to a historic monument.

Currently, the consent of an architect from Batiments de France (equivalent to English Heritage) has to be sought and his decision is final. The new proposals plan to make this consent purely advisory in some cases, to the dismay of many local authorities anxious to preserve France's valuable 'patrimoine', as well as architects from Batiments to France.

M Frédéric Auclair, president of the association of architects of BdeF has pointed out that his members oversee some 500 places in France classified as of special historical interest, and deal with some 400,000 applications annually. Of these only 10% are rejected outright, and the majority are allowed subject to often minor alterations to the building plan submitted.

As part of a widespread reaction against the government's proposals, some regions are actively considering the establishment of protective zones which would consider planning applications in sensitive areas similar to those managed by Batiments de France.

The 200 architects employed by Batiments de France are part of the French ministry of culture, and their role is to help protect and preserve sites considered of special historic interest.

Saturday, October 10, 2009

French property buying - a safe and secure process

Reading a story in the property section of today's Daily Telegraph offers a timely reminder of the uncertainties surrounding the British property buying process compared with that in France.

The report tells of a couple in the process of selling their West London apartment and buying another, and due to complete - and move - at the weekend. A last minute problem in the resultant 'chain' meant that everything was suddenly on hold, just days before the removal vans were booked to arrive, and even a temporary parking space agreed with the local council.

Fortunately, such a situation could rarely, if ever, occur in France. When a buyer agrees to buy and the vendor agrees to sell, the first thing the parties do is agree on the offer price of a property and then enter into a pre-contract of sale (known as the 'compromis de vente') which sets out the terms and conditions under which the transaction will be carried out. The document will include an agreed date for completion before a French Notaire.

At this point, the buyer has seven days of 'reflexion' or 'cooling off' (more if he is seeking a mortgage) during which he can pull out of the deal. If he does not avail himself of this option, he is firmly committed to the deal and pays over a 10% deposit as security, to be held by the Notaire or the estate agent handling the sale. The vendor has no right of retraction.

Conditional clauses may be written into the 'compromis de vente' with the agreement of both parties. They can typically include the buyer securing a mortgage (nearly six weeks are allowed for him to find and accept an offer), a satisfactory building survey, or the obtaining of planning permission in the case, for example, where the new owner wants to carry out extensive renovations.

If all the conditional clauses are met, the buyer has no grounds for withdrawing from the deal and will as a minimum forfeit any deposit paid if he decides not to go ahead. If he is seeking a mortgage, he must show due diligence in his efforts: he cannot sit back and do nothing and then withdraw within the specially extended six week period.

Completion - signature of the final sales act - will normally take place within six to eight weeks of signing the 'compromis' - plus additional time allowed to satisfy any conditional clauses noted above. The balance of the purchase price must be lodged in the Notaire's special client account several days before the parties attend his office to sign the final act of sale.

Buyers are advised to visit the property with the agent, just before completion and signing of the final sales act, to check that the property has been vacated (unless other arrangements have been mutually agreed) and that it is in the condition in which they found it when agreeing to buy - for example, that no fixtures and fittings have been removed that were agreed to be included in the purchase price.

If all is well, all parties will sign the final sales act. The buyer is handed the keys and becomes the new owner, and the vendors can walk away with a cheque for the proceeds, once the Notaire - in his role as tax gatherer - has settled any outstanding payments such as a mortgage or any capital gains tax that may be owed to the French State.

The timescale between signing the pre-sale contract and the date of completion can be considerably shortened where, for example there are no conditional clauses in the pre-contract, and both parties are prompt in furnishing the documents required by the Notaire to prepare the final sales document.

Monday, October 5, 2009

Using a French architect can save you money





In this month's issue of French Property News* I have described how using an architect to oversee your French building or renovation project can enable you to make substantial savings in your budget.

The article is based on research I undertook in June and July on small new-build projects, none of them costing more than about 100,000 euros (excluding land) and involving a two or three bedroom detached family home.

'People have the idea that you need only use an architect for projects involving over 170m²' explains my architect colleague Manuel Grau DPLG**, 'but they should bear in mind that when they buy a standard model house from a developer's catalogue, they are paying an in-built profit mark-up of 20 or 30 per cent. By using an independent architect you are paying basically for the labour and materials, plus the architect's 12 - 15 per cent fee.

'With careful design and listening to what the client wants, it is possible to site a three-bedroom detached house on a plot as small at 200m² and still have enough room for a small garden for the children and eating-out. We can also ensure valuable cost savings by correct choice of materials, proposing standard as opposed to custom sizes, and improve insulation by using the very latest materials.

'Where the architect oversees the project through to completion, he of course takes full responsibility and only authorises payments as the building work progresses. Essential if you cannot be on site yourself and do not know the intricacies of the building business'.

* www.french-property-news.com or www.archant.co.uk
** Email grau.manuel@wanadoo.fr

Photos show a 3-bedroom family house of 110m² built at a cost of 114,00 euros (excluding land) or 1,036 euros/m². Kitchen, bedrooms, bathroom and laundry room were sited on the north side service road, with living rooms facing south to the garden. Architect Cécile Gaudoin DPLG, Rennes. Email cecile.gaudoin@wanadoo.fr

Saturday, October 3, 2009

French property title deeds

A question that is often asked on discussion forums is When and what sort of property deeds will I receive, after buying a property in France?

French title documents are similar to those encountered in other countries, and are basically a compliation of the documents the buyer (and seller) will have initialled or signed before the Notaire on completion of the sales transaction. They include the final sales act and other items such as a certified copy of the 'expertises' (the technical survey carried out before the sale), and generally comprise some 40 or 50 pages.

On completion of the sale, the Notaire files these documents with the local land registry ('bureau des hypothèques') and in due course will receive in return a certified copy bearing the bureau's official stamp and file reference number. The Notaire will then in turn send the new owner a certified copy of his 'titre de propriété' as it is now called (usually along with the Notaire's itemised account, made up of his fees and expenses and taxes, including those for filing the aforementioned documents). The process normally takes 3 to 4 months.

Because of the delay between filing and receipt of the 'titre de propriété' from the land registry, the Notaire will provide the new owner with an 'attestation' (several copies) certifiying that he is now the owner of the property. The 'attestation' is an interim document and may be useful to have when dealing with the utility companies, tax office, your bank etc.

The Notaire will normally keep a copy of the 'titre de propriété' in his files and it is important to retain a copy for yourself, as it will be required should you decide to sell the property, and in situations such death/inheritance, divorce/separation, or should you wish to borrow money using the property as collateral.

The 'titre de propriété' is the only proof you have that you are indeed the true owner of the property.

French mortgage interest rates down 1% in 12 months




A year ago - according to an article in today's Le Figaro - it was impossible to secure a French mortgage at a rate of less than 5% over 15 years, rising to 5.5% over 20 years. Today's reductions of 1% may at first seem scarcely worthwhile, yet over time they can represent a saving of up to 10% on the cost of borrowing to buy your house or apartment.

Taking a typical loan of 100,000 euros over 20 years, monthly repayments fall to around 600 euros a month, with a mortgage negotiated at 4%, as opposed to 660 per month at the rate of 5.15% which was typically proposed by the banks just 12 months ago.

The reduction in interest rates also means that you can borrow more with the same level of monthly repayments, normally required by French banks not to exceed one-third of your nett income. Monthly payments of 1000 euros per month over 20 years would, just one year ago, have allowed you to borrow up to 150,000 - today you could borrow 165,000 under the same conditions.

According to mortgage brokers Capfi, cited in the article, it is possible today to negotiate a mortgate over 20 years at a rate of 4% or 3.75% over 15 years, in both cases excluding the cost of insurance.

While variable rate mortgages have always been regarded as risky but attractive - currently offered at 2.60% today - they can be capped at 1% or 2% above the starter rate, which is this case could be around 3.5% (capped at 4.5%) to reduce the element of risk.

If you expect to sell your property within a few years, the variable rate option can be particularly attractive, when linked to the prospect of capital gains on the sale, which are free of tax if your property is classified as your principal residence.

As always, it pays to shop arround for the best deals. And according to Capfi, todays attractive rates should remain on offer 'for at a least a few more months'.

(Source Le Figaro, Hervé Rousseau, Saturday 2 October 2009).

Thursday, October 1, 2009

Problems with the neighbours?

Problems with neighbours ('troubles de voisinage') are taken very seriously by the French and are covered by both the civil and criminal law codes.

Problems that typically arise include noise, DIY activities at night or the weekend, late night partying, and domestic animals, including in the latter case loud and persistent barking by a dog left alone at home or on a balcony (a common occurrence where people are out at work all day), and dangerous and threatening dogs.

If you live in a co-ownership property such as an apartment, you can first speak to a member of the residents committee ('conseil syndical') or failing that to the 'syndic', the professional management company in charge of the property.

In serious cases, you can make a formal complaint ('porter plainte') to the Gendarmerie who are bound to take action.

Sanctions include fines - 150 euros or more for noise, 450 euros if it occurs at night ('tapage nocturne'), and up to 3000 euros for premises such as a bar or disco. In very serious cases, such as threats from a neighbour, the result may be a prison term for the offender.

In all cases a remedy must be applied promptly to hault the nuisance; and a dangerous animal such as dog might be obliged to be kept on a lead or muzzle, or possibly be ordered to be put down.

If you are the victim of nuisance, you should act quickly and decisively, perhaps trying to include the support of neighbours but if necessary going it alone. Your complaint will be taken seriously.

Anticipating and avoiding problems
Checking the area around a property you are thinking of buying is time well spent, and we always advise clients (or do it for them) to return at difference times of day, during the evening, at the weekend as well as during the week, even if possible at different times of the year in the case of, say, a property situated in a holiday resort which is quiet out of season but can be busy in the short holiday period.

Real life examples include:
- properties close to a school you may have visited during school holidays or over a weekend that may be noisy on schooldays
- properties near shops or business premises need to be visited on weekdays
- properties near bars, restaurants cafés should be re-visited in the evening

It is generally wiser to allow time to explore an area thorouhgly than spread your research over too wide an area, in the hope of finding your dream home!

Tuesday, September 29, 2009

More than one owner/vendor

It is quite common for French properties offered for sale to be owned by more than one person, most commonly a husband and wife couple. Quite often however a property is inherited as a result of a death, and because of France's peculiar succession laws, may become the property of a (large) number of family members. They have to first agree among themselves before the property can be sold. If there is disagreement, the situation may have to be resolved through the courts.

One of the estate agent's duties when taking on a mandate to sell such a property is to ensure that the inheritors have good title to the property, and that they have all agreed to sell. In practical terms this means that the mandate authorising the agent to market the property, in return for a percentage commission, must be signed by all the inheritors, either in person or by proxy.

If the group of inheritors is widely dispersed, including for example, some living abroad, it may take some weeks to gather the necessary signatures. The same goes for the compromis de vente (pre-sale contract) which will be signed by all the inheritors/vendors and the would-be purchaser.

At this point the French notaire will become involved and he too will verify title and capacity to sell, and all the inheritors will be required to be present in person before the notaire for the signing of the final sales act, unless they have signed a power of atorney authorising (usually) a member of the notaire's staff to act on their behalf. This is commonly the case where an inheritor lives abroad and does not wish to travel to France.

Subsequent to the sale, and of no direct concern to the buyer-now-owner of the property, the notaire will have to apportion the proceeds of the sale among the inheritors in accordance with their share in the deceased's estate, and after deducting all charges and taxes due.

Friday, September 25, 2009

Spain - unsold properties now 1.6 million

According to a report published by a Madrid research group RR de Acuna & Associates, the number of unsold properties in Spain has now reached 1,623,000 - against an annual estimated demand of 218,000. Other recent reports quoted below indicate that of these around 1 million are new-builds and 500,000 of these are located on the Spanish Costas. Right up to 2008 construction companies were still building at the rate 800,000 new dwellings annually, until the recession hit the Spanish economy.

The consequences are far-reaching and include the reduction of the building sector from 18% to around 5% of Spain's GDP, and fears of unemployment peaking at 25% before the economy starts to recover, not before 2012 according to Acuna.

In contrast, according to Notaires de France, some 500,000 property sales are expected to be registered in France during 2009.

(Source Daily Telegraph, 24 September 2009)

Wednesday, September 23, 2009

Setting up a business in France



Setting up a business in France (as opposed to being self-employed, see related articles) can often result from the extension of a business activity already undertaken in your home country, and that can be gradually developed in France. There are three main stages in creating a business presence in France by an existing UK company:

Bureau de liaison
You can operate in France as a 'bureau de liasion' which is basically an office designed to research the local French market, establish contacts, undertake advertising and promotion, and do all things necessary to prepare for an eventual commercial activity in France. Provided it is limited to these activities, no formal registration is generally required. You may ask your local French chamber of Commerce (CFE) to register your bureau de liaison but they are not obliged to do so. If they accede to your request, you will be issued with a business registration number (SIREN, SIRET) and a business registration document (K-bis) - all of which may assist your contacts with official bodies (including opening a local bank account) and public organisations to which you intend to market your product or services. The bureau de liaison has a limited life as you must register a formal branch office or subsidiary once you start actively trading in France.

Branch office ("succursale")
The branch office is essentially an extension of the parent company, and while it has a certain autonomy and may sign contracts, receive payments etc locally, on behalf of the parent company, it remains under the control of the parent. Formal registration with the CFE is required and the branch office will receive its SIREN, SIRET and K-bis. Its fiscal status will be subject to French rules of taxation for branch offices, including repatriation of profits, and matters covered under dual taxation agreements between, say, Britain and France. Registration is required within 15 days of establishment.

Sudsidiary company ("filliale")
This is basically a French company which is wholly or partly owned by the parent company, and set up using one of the French equivalents of the limited liability company, such as an SA or SARL. It is subject to French taxation and other regulations applicable to French companies.

Registration and documents required
For all the above registrations, documents required include copies of the company statutes (Memorandum and Articles of Association), a copy of the board's decision to open a French office, personal details of those responsible for the French office - all of which have to be translated into French by a sworn translator ("traducteur assermenté"). The subsidiary will require the setting-up a French SA or SARL using French forms of statutes, either prepared by a lawyer or using standard models.

Annual returns
None are required for the bureau de liasion (as it does not trade), but are required in the case of the branch office (in addition to the authorities in the home country). The French subsidiary is treated as a normal French company.

Management and employees
The status of the manager or "gérant" of the bureau de liaison or branch office will depend if he/she is a (temporary) expat or resident in France for tax and social security purposes, in the latter case complying with French requirements. The subsidiary comes wholly under French rules, as do (French) employees in all three cases, for purposes of tax and social security and terms of employment.

Further information
Very helpful advice and information including printed fact sheets from the Commercial Attaché of the French Embassy in London about how to establish a presence in France, and from the French Chamber of Commerce in London. In France, from your local CFE and the British Chamber of Commerce in Paris.

Monday, September 21, 2009

Property shortage holds back UK market, Spain shows price falls

According to a report by Rightmove, reported in today's Daily Telegraph, the UK property market is suffering from a shortage of properties for sale. Estate agents have an average of just 69 unsold properties on their books, compared with more than 70 just a few months ago. These figures are significant in view of the closure of some 20% of estate agencies in the last 12 months.

Around 23,000 new homes are coming onto the market each week in England and Wales, the equivalent of 1.2 million a year, compared with the normal 2 million annually in recent years.

Price trends show a mix of falls, such as 3.6% in Yorkshire and Humberside, and rises of 8.4% in East Anglia during September, following a sharp drop during August. Taking the country as a whole, today's average prices are just 1.5% less than they were in September 2008.

Lack of choice in some areas, plus the demand by lenders for higher deposits, were both additional factors holding back the market, particularly among potential owners wanting to 'trade up' but deciding instead to stay put.

'Lenders' says the report, 'quite naturally prefer to lend to lower risk borrowers in better locations, with better job security, larger deposits and more resilient property values'.

In a programme on French television last night (Arte, Channel 5) about the situation in Spain, thousands of properties remain unsold across the whole of the country, largely as a result of over-supply. However, dramatic price falls of 20 or 30 per cent are helping fuel a demand for seafront apartments and villas on the Costa Brava, just 50kms from the border with France.

However, Spain has an estimated 1 million newly built homes awaiting buyers, of which 500,000 are located on the Mediterranean Costas. Although many are now heavily discounted, bargains are sometimes not all they seem.

Food and household shopping in Spain have traditionally cost less than in France, while Spanish property prices have generally been ahead of those for equivalent properties on the French Mediterranean coast. Many reductions in the price of Spanish coastal properties merely reflect this reality.

This is particularly the case in Pyrénées-Orientales just the other side of the border with Spain, where correctly priced properties have generally held their value.

Friday, September 18, 2009

Time to buy now? Mixed messages from property experts

Reports in today's French newspaper Le Figaro and Britain's Daily Telegraph reveal a mix of opinions about the state of the French and British property markets, and when prices - as well as interest rates - are likely to rise or fall, and how this might influence ones decision to buy.

According to one expert from the French firm Global Equities, property prices are likely to fall by another 10% between now and the end of 2010 or early 2011, before starting to rise again. The same spokesman notes however the sales of new-build properties are holding up but progress here as in other markets will depend largely on interest rates.

An economist from Xerfi is also positive about new-build sales, which have been boosted by investors taken advantage of the French government's latest tax incentives (loi Scellier) and seeking a relatively safe haven for their funds. Prices of older properties however were likely to decline by 10.5 this year and a further 5% in 2010 before stabilising in 2011 and starting to rise again in 2012.

According to a spokesman from HSBC prices need to have declined by as much as 25%, since the start of the econolic crisis, to reflect their true value against French consumers' reduced spending power, which has been declining since 2003. The same spokesman confirmed that the market for new-builds is stronger as investors have come onto the market in the last few months, having deferred spending until now.

Interest rates are the key factor, according to the spokesman from Emprunt Direct, who points out that it is currently possibly to borrow at 3.60 - 3.70% over 10 years, and at under 4% over 25 years. These rates are likely to hold till the end of the year before rising again in 2010. Low interest rates and reducing property prices - now at an end, according to this source - should help encourage first-time buyers enter the property market in the coming months.

For a view of the British market, according to the Building Societies Association, 58% of consumers feel that now is a good time to buy, compared with only 34% in September 2008. However, job (in)security, the prospect of finding a larger deposit and worries about keeping up mortgage repayments continue to be cited by the majority of would-be buyers as the principal deterrents to home buying. However buyers are more confident they will find a mortgage than they were a few months ago.

Whether buying or selling a French property, which is often linked to the sale of a property in Britain, the picture is far from clear. As resported elsewhere on this site, sales are down by about one-third overall in France, but some 500,000 transactions are nonetheless expected during 2009 according to Notaires de France. Price variations vary from region to region, and even within the same town or street, with some properties holding their value and others not. While some properties remain resolutely overpriced by their owners, despite the advice of estate agents.

As always, a decision to buy or sell depends very much on personal circumstances, and it remains the case that sensibly priced properties in good condition will always find a ready market. Careful research is recommended.

Tuesday, September 15, 2009

Square metres are not the only measure




French property prices are often quoted in euros per square metre, particularly when comparing prices from one region to another. While this is a useful rough guide, it is not the only measure that should be considered when looking at a property you are thinking of buying.

More important are the disposition and layout of the rooms. Older properties may include a lot of wasted space in the form of corridors, hallways or landings on upper floors, that may be difficult to convert into habitable space. And generally a room that communicates directly with another is inconvenient, except perhaps for a living room/dinnng room or a bedroom/dressing room.

Note however that mezzanines, balconies, loggias and areas where the ceiling height is less than 1.80 metres are not defined as 'habitable space' under the terms of the 'loi Carrez' of May 1997 which introduced new regulations for calculating the surface area of properties sold within a co-ownership complex (principally apartments, holiday villas etc). These often provide additional usable space, for example, as a sleeping area (mezzanine) or additional dining/living space in the case of a (closed-in) loggia or terrace.

When they put their property on the market, vendors are obliged to employ an expert to undertake a series of technical tests (including gas, electricity, lead, asbestos etc) usually referred to as the 'expertises' and which include a certificate of the 'surface loi Carrez' - the official habitable area. The expert's dossier should be made available to intending purchasers before they enter into a commitment to buy.

The expert's measurements should be accurant to within 5% and if it is found to be less then the buyer may have a right to a reduction in the price.

The diffrence between the actual habitable space and the 'surface loi Carrez' may be considerable and both dimensions can be quite legally mentioned in property advertisements. So if a property sounds interesting, it is worth a visit rather than simply relying on the printed description.

Monday, September 14, 2009

Syndic voted for building works?

One of the essential pre-purchase checks when buying a French co-ownership property (such as an apartment) concerns the 'syndic', the professinal management company responsible for administering the building, in conjunction with an owners' committee (known as the 'conseil syndical').

The estate agent handling the apartment sale should be able to provide a record of recent annual general meetings of the syndic and the co-owners, in which you can find details of building works, such as repairs and decoration, recently undertaken, in progress or planned for the future. The costs are apportioned among the co-owners, in accordance with the size of their apartment, which in turn determines the number of shares each owner holds in the freehold of the building.

The syndic is typically responsible for insuring the building fabric, and maintaining the common parts such as entrance, hall ways, corridors, stairs, lifts and outside areas such as a garden, car parking or swimming pool. Each apartment owner contributes an annual service charge to help defray the costs involved, and occasional calls for additional funds voted by the AGM.

Your decision to purchase - or not - may well be influenced by the scale and type of works in hand or planned, as a share of the cost will fall on you, the buyer. Typical major works can include exterior painting ('ravalement'), internal decoration, and repair or replacement of the lift to comply with recent norms. Many apartment blocks from the 1970s and 80s now require major refurbishment, and when visiting properties it is advisable to check the condition of the building overall, in addition to the apartment you may be considering buying.

Typical costs recently incurred involving buildings in my region include internal painting at 60,000 euros (individual contribution from 600 euros for a studio apartment) and replacing the lift in an eight-storey block at 80,000 euros. The cost in this case is based on a combination of factors - size of the apartment and floor level. A 50m² second floor apartment had to contribute 1,600 euros and an 8th floor studio 1,800 euros.

The overall costs of future work, based normally on at least three competitive estimates, should be available from the syndic, together with an estimate of the individual contribtuion that will be required from the apartment you may be thinking of buying.

Apartment owners are generally reluctant spenders but essential works have to be carried out from time to time in order to keep a building in good repair and maintain its value.

Wednesday, September 9, 2009

French property prices down slightly in August



According to a report by FNAIM (the French estate agents body) published today in Le Figaro, French property prices were down slightly again in August 2009 at 1.2%, slightly higher for houses compared with apartments.

This reflects an overall drop in property prices of 8.1% in the 12 months from August 2008, again with slight variations of -7.2% for apartments and -8.8% for houses. These price reductions are the first in ten years, when increases of 14% were recorded in 2003, 15.5% (a record) in 2004, 10.9% in 2005, 7.2% in 2006 and 3.6 in 2007.

In contrast, the number of annual transactions involving both older and new-build properties showed a steady increase from 2005 (625,000 older properties were sold and 121,000 new-builds), reaching a total of 650,000 and 127,000 respectively in 2007; followed by a decline in 2008 (575,000; 80,000 respectively), and a predicted 500,000 sales of older properties in 2009 and 80,000 new-builds.

The market for new-builds has been aided by a number of recent government tax-saving schemes to encourage investment in properties destined for rental, targeted at those on low incomes, and as part of an overall plan to ease France's chronic housing shortage.

However, a number of buy-to-let projects built under these schemes have failed to find tenants. I have just read of an apartment in Brive-la-Gaillarde (Corrèze,19) purchased in 2006 for 104,000 that has recently been sold for 76,000 euros! Among the reasons cited for the failure of many of these projects to find tenants are poor quality materials and workmanship, and inappropriate location - generally too far from centres of employment, schools and shopping, and lacking the public transport needed by tenants on low incomes. Many of them are unsaleable.

We always urge clients to take advice before investing in buy-to-let property, particularly under French tax-saving schemes, as to the viability of the project.

Friday, September 4, 2009

The cost of credit

Even with interest rates currently negotiable at less than 4% and French property prices at an all-time low, potential buyers should look hard at the real cost of buying a property on credit, and whether the time to buy is now.

Conflicting evidence abounds, of prices holding up or reducing, and whether the situation will be the same in 2010. The number of sales of new and old properties has certainly declined, from 650,000 in 2007 to a predicted 500,000 in 2009 (for oldder properties) and 127,000 (2007) to 80,000 in 2009 for new-builds.

Although individual examples of dramatic price reductions of 10 to 15 - or even 25 - per cent can be cited in certain situations, according to FNAIM the average reduction in the asking price has been just 8.8% for houses and 5.7% for apartments, in the twelve months period to July 2009.

Signs are that owners are hanging on and hoping things will improve, while potential buyers delay their purchase decision in anticipation of a further reduction in house prices.

For those hoping to purchase a property on credit it is a delicate balancing act. as even a 1% rise in interest rates can add up to 10% to the square metre price of the property. In the case that property prices rise at the same time as interest rates, a potential buyer might be regretting his wait-and-see approach as early as the middle of next year.

Note that the average cost of buying a French property on credit can add as much as a third to the property price. So a typical 200,000 loan at 4.20% over 20 years will cost just under 100,000 euros depending on life assurance.

(Based on the annual survey of French property price trends in Capital magazine, September 2009. www.capital.fr)

Thursday, September 3, 2009

Rents down for the first time in 10 years - report

French rents have dropped by just under 1 per cent in 2009 following more than a decade of annual increases, according to a report in today's Le Figaro.

Overall since 1998 the average rent has risen by 41% and the slight fall in 2009 is the first for over a decade. Nonetheless, rentals remain at their highest in Paris and Ile de France at an average 17 euros per m² for a typical 50m² apartment, which now costs some 825 euros monthly. This is followed by Nice and the Cote d'Azur where a typical rental is 600 euros per month for 50m².

Cheapest area to rent in France is Limousin (the area around Limoges) at 420 euros for a 50m² apartment - half the price of Paris. In Languedoc-Roussillon typical rents are between 500 and 525 euros for a 50m² apartment (ie 10 to 10.5 euros per square metre).

Studios and very small properties have generally not been affected by the slight reduction in rents, and as noted in the article below tend to cost more than the average price per square metre of a larger space.

Uncertainty about the future and fears of job loss have helped restrain peoples' decision to move, although some 1.5 million new leases have been signed on new properties and renewals, so far during 2009.

Addendum: A separate survey in the French journal Capital (September 2009) notes that in some areas of France reductions in annual rents can be as high as 7% - particularly in the case of larger properties (4 rooms) but in reality even these represent a reduction of only 9 - 15 euros annually per square metre.

Wednesday, September 2, 2009

Buy to let - plenty of choice, but proceed with care




Buying a property to let can be an attractive proposition but like all propety buying, you need to proceed with caution. Gone are the days however when yields of 10% or more were possible, and although French property prices are coming down in some areas, so are the rents that tenants are prepared to pay. There is still a gap between the average cost of monthly mortgage repayments and the cost of renting, and it is unlikely that rental income will totally subsidize a mortgage - if that were the case, renters would themselves become buyers. Even with a gross yield of 4.5 to 5 per cent today, repairs and maintenance, property management fees, taxes and the occasional month without a tenant can substantially reduce this figure. Is it worth thinking of buying a property purely for letting?

Yes and No. Within Pyrenées-Orientales (66) there is certainly a wide choice not only of suitable properties but also a number of different rental markets that can be exploited. The largest and most obvious of these is the summer rental market, where during the high season weekly rental rates can be multiplied by four times the monthly figure charged outside the most popular six weeks holiday period, from early July to the end of August.

Competition however can be fierce, and the main holiday resorts have an exceptionally high percentage of second homes - 60% in Canet, 71% in St Cyprien, 72% in Argelès-sur-mer and 66% in Collioure. The bulk of properties (principal plus second homes) comprise individual houses, ranging from 60% in Canet and St Cyprien, 65% in Argelès and just over 50% in Collioure. Of the remainder, just a tiny percentage (3 - 5%) of the housing stock comprises studios, and the largest category (around 50%) is made up of three and four room dwellings, while the percentage of two-room (apartment) properties is under 20%.

Curiously, the departmental capital Perpignan presents a number of surpising contrasts, considering the high number of students (8,000) attending the local university and the needs of the young working population for affordable housing. Of the overall housing stock, 65% comprises individual houses and 33% apartments, with a high percentage of owner/occupiers (61%) and principal residences 75%, and 34% renters. Less than 3% of Perpignan's apartments are classified as studios, and the largest category (60%) is made up of houses and apartments of three rooms or more, reflecting the high rates of owner/occupation by married couples and families. Thirty per cent of homes have five or more rooms, representing part of the hidden wealth of this area, otherwise better known for its high levels of unemployment and emphasis on tourism and seasonal work.

In terms of purchase price versus potential rental income, Perpignan has some of the region's lowest property prices averaging 2,000 euros per m² and a 100,000 euro studio or small two-room apartment could be rented out for 350 - 450 euros per month, againts average monthly mortgage repayments over 20 years of just under 1,000 euros.

Property prices tend to rise on the Mediterranean coast, and in the resorts of Canet, St Cyprien and Argelès they are closer to 3,000 per m² rising to 4,000 euros per m² around the yacht marinas in St Cyprien and Port-Argelès. In the histoic village of Collioure some property prices have even touched 6,000 euros per m² in recent years.

The coastal resort towns are not especially attractive to long-term renters (students and workers) because of the lack of accessible transport. Many jobs are centered around Perpignan but away from the town centre and concentrated in the many industrial and commercial business parks that surround the town. Not surpisingly the region has a high level of car ownership - 51% of households owning at least one vehicle and 29% two or more.

What then of the arithmetic? Although some property prices rose dramatically - albeit from a very low base compared with the UK and Ireland - after 2002, they have since stabilised and in some cases fallen by a possible 5 or 10 per cent. Owners who bought pre-2000 are probably still enjoying a steady income from renting and as they approach 15 years of ownership can look forward to selling their property without having to pay capital gains tax (which reduces by 10% per year of ownership after the first five years, on second homes).

Several of the more recent developments on the Mediterranean coast date from the start of the 1990s and have reached their 15 year life. I have noticed an increase in agents' For Sale boards partly as a result of the original owners cashing-in on their investment, and also a sign that the 'crisis' is obliging some owners to generate some ready cash. As a result, there is currently a wider choice of available properties compared with 2008. Bargains are still rare however and prices are unlikely to fall back to their pre-2000 levels. But it is almost always possible to negotiate a modest reduction in the asking price, and if you are prepared to look long term, your French rental property can still represent a sound finacial investment.

(Figures quoted from Benchmark Group, Le Journal du Management)

Monday, August 31, 2009

Civil partnerships in France

Since December 2005 it has been possible for two people to enter into a 'pacte civile de solidarité' in France, governed by article 515-1 of the French Civil Code. This new arrangement can be suitable for same sex or male/female partnerships, and brings with it a number of advantages including savings on inheritance tax.

The procedures for entering into a PACS are relatively simple and require only a declaration by the two partners, two orignal copies of which are lodged with the civil court. A French 'notaire' or 'avocat' can help with the wording and offer advice as to how you can structure the partnership arrangements - for example in relation to property and other assets held by one or both partners.

The PACS continues to exist until amended (by filing a declaration at the court) or terminated by mutual agreement; by either partner wishing to end the PACS; in the case of marriage by one of the partners; and on the death of one of the partners.

Under amended inheritance laws, valuable savings can be made if one partner leaves his/her estate (property) to the other, where before inheritance tax was payable at 60%, the high rate for bequests outside the immediate family. It is essential to take formal legal advice, depending on your status as a French resident or not, before entering into a PACS.

Friday, August 28, 2009

Employed and self-employed in France

Many people who come to France to work or set up a business can easily find themselves lost in the country's byzantine bureaucracy, especially when faced with the complicated structure of tax and social security. Having been both employed and set up my own business, I offer a few survival tips born of practical experience.

Being employed
Being employed can be relatively simple and the main differences concern your type of employment contract, which can be either long term/indefinite (CDI) or comparatively short term/fixed (CDD), such as for the holiday season or to replace someone on maternity leave. The other choices are between full time (35 hours per week) or part-time (generally less than 20 hours).

When you get your payslip, you will see that there are around 12 or 15 different deductions for unemployment, social security, health and pension, paid partly by you but the major proportion by the employer, effectively adding a further 50% to the salary cost of employing you. The social security payments (known as 'cotisations') apply whether you are retired or already covered by insurance, and have to be regarded part of the cost you pay for the privilege of being employed and working. The burden on the employer is considerable and clearly a disincentive to employing any more staff than are absolutely necessary.

Income tax is payable by the employee annually, using a form that is not dissimilar to the British version. There are the usual 'personal allowances' or bands of tax free income, and certain expenses can be deducted such as travel-to-work costs, even by employees. If you are married, your tax rate is calculated per houshold rather than individually, with tapered reliefs for, for example, a non-working spouse, children of school age, parents who may be dependent and so on.

In terms of social security, benefits are fairly generous in terms of unemployment, sickness, maternity leave etc. If you become unemployed, you need to first register at your local combined job centre (known as a 'pole d'emploi') which will deal both with your benefit payments and helping you find your next job.

Self employment
Freelancing in France has never been particularly easy until the introduction of the new status of 'auto-entrepreneur' in January 2009. Still in its infancy, the system has been experiencing teething troubles, largely to do with the payment of social security contributions to your designated collection organisation (known as a 'caisse') which can vary according to the type of work you do. For example, most intellectual occupations, or liberal professions such as teaching or consultancy, come under a body known as CIPAV which has been found to be particularly inefficient. Artisans and crafts people have also experienced problems due to opposition by some trade associations, who claimed that the livelihoods of their members would be jeopardised by competition from 'unqualified' auto-entrepreneurs. Legislation requiring proof of competence has as a result been adjusted and comes into effect in January 2010.

Despite all these problems however, the new system had attracted nearly 200,000 registrations by the summer of 2009 and includes those already in jobs, unemployed, retired and those transfering from other tax and social security regimes. Relatively simple by French standards, auto-entrepreneurs pay a fixed percentage of turnover, combining tax and social security contributions, at a rate of 13% for commercial activities (turnover limit of 84,000 euros annually), and around 21% for services and liberal professions, with a turnover limit of 34,000 euros. VAT/TVA can be neither charged nor recovered, and if you exceed the annual turnover limits you are obliged to change to another regime. Note that the percentages charge are on total income invoiced, not on profit after allowable expenses.

The registration process is relatively simple and can be done online, as can any changes in your type of activity, or indeed if you decide to close your business. If however you have high business costs or need to register for VAT (for reasons of cost savings or higher sales margins, for example) then you need to consider one of the alternative regimes, where in some cases you can opt for either a system of fixed percentage of costs or one based on actual deductible costs. For these it is advisable to consult a French accountant.

Questions have been raised as to whether the auto-entrepreneur system can provide a backdoor route into France's social security system, typically in the case of British people moving to France who cannot get social security cover, as they are below the statutory retirement age and not in receipt of a British pension. One of the attractions of the auto-entrepreneur scheme is that tax and social security are only payable on actual (as opposed to notional turnover) which is not the case with some other more burdensome regimes. The question is still being debated and recent statistics seem to indicate that large numbers of auto-entrepreneurs are already in jobs or have a working spouse, or are retired and receiving a pension, and in many cases are simply following a part-time activity that will bring them some additional income at the end of the month.

The auto-entrepreneur scheme is open to everyone including non-French living in France. There is a lively discussion forum and links to other information sites on www.auto-entrepreneur.fr to which I sometimes contribute. The subject has also been debated in English on the www.totalfrance.com and www.livingfrance.com forums, particularly in relation to the social security implications.