Thursday, April 8, 2010

Buying a French property for re-sale

A question that is frequently posed by potential buyers is whether it is feasible to buy a French property, do it up and then offer it for re-sale. Some principles to bear in mind include:

1. Capital gains tax will be payable on the re-sale of a property that is not your main home (as evidenced by your tax status as resident in France). There are some abatements possible, with tapered relief after year six years of ownership, and no CGT to pay if you sell the property after fifteen years.

2. Other costs that need to be factored-in include transaction costs - agent's fees, notaire's fees and taxes - both on the original property purchase and its subsequent re-sale. Be prepared for delays due to planning permissions, cost overruns and other hazards associated with this type of project.

3. If you plan to undertake the renovation work yourself (DIY), note that particularly French buyers prefer renovations that have been carried out by registered artisans, and like to see the bills and accompanying guarantees regarding the quality of the work.

4. If due to change of circumstances, such as a cash shortage, you are unable to complete the renovations, a partially renovated property can prove very difficult to sell, except perhaps at a knock-down price, that may result in your incurring further losses.

However, if you plan to invest in a property for future (short-term) re-sale:

5. Choose an area and a type of property where there is an active market. Examples include areas where holiday lettings predominate or there is a demand for student accommodation.

6. Check local prices for fully renovated properties against the cost of buying a property for conversion, plus building costs and a margin for profit, after taxes etc.

7. Ensure that all work is carried out by properly registered, fully insured (French) artisans, who can provide the appropriate guarantees ('d├ęcenniale' etc).

8. Ensure that you can be on site to check progress or have someone who can do this for you. An architect is advisable in virtually all cases, even for small projects, to plan and supervise the work, liaise with artisans and suppliers, and authorise stage payments as work progresses.

9. Check and double check the figures from initial purchase through to completion of the conversion.