Monday, October 18, 2010

Buying to let - caution!

Last night's Capital (M6) programme emphasised once again extreme care needed when buying an apartment intended for letting, particularly under recent government tax saving schemes such as the 'loi Scellier'. Under this scheme, monthly repayments of, say, 1200 euros can be reduced to around 400 euros, after taking into account income tax saved and income from rentals, encouraging many French investors to put their money into bricks and mortar.

The programme looked at two examples, a typical commuter town 15 kms from Paris and the city of Bergerac. In the first case, the development turned out to involve hundreds of apartments, located not 10 minutes but nearly 45 from the rail station, in an area of over-supply and lacking public transport. Much the same situation was apparent in Bergerac, where despit the promises of developers, the majority of apartments were un-let - due again to poor location and over supply according to local estate agents interviewed.

Even though the developers promised a guarantee against failure to find a tenant, in practice this lasted for only 12 months. And when desperate owners tried to sell, they found that their apartment was over-priced, and that after one year without tenants (and rental income), the tax advantages were cancelled. One owners found himself paying over a 1000 euros a month for an apartment he did not occupy, which remained un-tenanted and which he could not sell.

Surprisingly, less than half of buyers bother to visit the site or the area where they are being urged to invest an average of 200,000 euros, to check the quality and location of the property, and to find out for themselves whether a rental market actually exists. A government official interviewed admitted that the criteria for selection of projects under the Scellier scheme  were being revised to include an asessment of rental potential, but the new rules would not apply before 2012.

Curiously, France currently has an estimated immediate need for over 1 million new homes.