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)