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.

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.