Renting versus buying

A survey published by zoopla;co.uk and published in today's Daily Telegraph reports that in 47 out of 50 large towns in Britain the cost of renting exceeds that of repaying a mortgage. In the case of London it costs 31% more to rent a property than to buy. As a result, potential buyers are faced with ever higher rents, making it even more difficult to save for a deposit.

Compared with Britain at 70%, France has a relatively low level of ownership of principal homes (at 56%), well behind other European countries such as Spain, Greece and Italy. Out of 27 million French households, 43% are renters, with 11.6 households choosing or being obliged to rent. With over 3 million second homes, many choose to live in rented accommodation (as their principal home) and 'invest' in the second home, either for rental, holidays or eventual retirement.

During the current economic crisis, the French property market has been slower than normal, as French banks and mortgage providers excercise more than their usual caution regarding deposits and the one-third income rule - even though, as in Britain, monthly rentals can equal or sometimes exceed rental payments. The banks' traditional insistence that borrowers should show evidence of a long term work contract (CDI) seems somewhat archaic in view of continual employment uncertainty, and the growing numbers of newly self-employed (an estimated half a million, though many part time, created in the last two years).

Source: www.telegraph.co.uk Property

French Property News, December 2011

This month's issue looks ahead to the major London property exhbition in January which normally provides a post-Christmas stimulus to a market that is traditionally quiet from mid-Novelber until early new year.

Based on my personal experience of currently selling my property on the Mediterranean coast and moving inland to Perpignan, I have been forced to analyse my needs and requirements (budget, amount of space, long term prospects etc) and ask myself the sort of questions which face every potential French property buyer - I include my Twelve Golden Rules for Successful Property Searching.

Also some of the frustrations of property searching, not least of which are the major property websites - one boasting nearly 800 000 French properties came up with nearly 350 meeting my basic parameters; and the poor quality of both photographs and descriptions - such as 'city centre' (well, there are parts I would not consider living in), floor level (I prefer a top floor), charges and taxes (which can vary widely), all the sort of information I want to be in possession of before even considering a visit.

Buying to let

An interesting article in the French daily newspaper Le Figaro has highlighted the situation of people who invested in French property to rent before the spectacular price rises of the 80s and 90s compared with the situation today. Investing in studios and apartments to rent was particularly attractive to future pensioners at the time, with one example cited of a lady able to add some 1 500 euros monthly to her retirement pension (in addition to a further 1 500 from her employment!).

Another investor, a lady teacher, recalls buying three studio apartments in a sort-after area of Lyon, spacing the purchases over a period of ten years each, giving her time to repay the bulk of the mortgage. She reckoned on contributing a further 100 to 150 euros a month, but overall is currently earning a 6% return on her investment. For someone starting out today, this would be more likely 2.5 to 3 per cent, she admits.

Although monthly rentals are now approaching the levels of mortgage/loan repayments - and in some cases exceeding them - many investors admit that the market is less attractive than it used to me. Among the complaints cited in the article include higher taxes and charges, including the new CGT rules on resale, the higher turnover of tenants and the attendant costs of refurbishing the property between rentals; and unpaid rents as tenants disappear when unable to pay the rent due to job loss or other circumstances.

In the correspondence following the article, many complain of the attitude of French banks towards new borrowers who are forced into renting when they could easily afford monthly loan repayments, and the resulting rise in rentals. For their part, landlords talk of increasing irresponsibility among tenants and complain that the new laws allowing them to accept only a one month deposit mean that tenants can leave behind them a trail of damage, with subsequent repair costs and loss of rental income to the owner.

Source. LeFigaro.fr 19 november 2011

French Property News, November 2011

In this month's issue I have taken a look at France's buoyant rental markets, from the point of view both of owners wishing to rent out their property, and renters needing guidance about how to secure the best long or short term deal. France's rental market is highly controlled and tenants are carefully protected by law from summary eviction, including in cases of non-payment of rent. However, many French choose to rent, particularly in large cities where the cost of buying an apartment may be prohibitive, and instead invest their savings in a second home in the country or on the coast, which may have been in the family for several generations.

The article also looks at seasonal/holiday rentals and the formalities that need to be completed in order to reach a satisfactory agreement between owner and tenant - guarantees, responsibility for repairs, periods of notice, a tenant's options to buy are all covered. 

French Property News is on sale in newsagents or see www.french-property-news.com

Spending on your property to beat the downturn?

According to an article in today's Telegraph* newspaper, many Britons are being advised to spend money on improving the property they already own, in order to 'prepare it for the market' when prices are predicted to rise again in two or three years time.

However, the writer Caroline McGhie, offers some words of caution - including not over-spending for example, to the extent that a property stands out as 'expensive' compared with other houses in the same street. It is well known that seekers of four-bedroom houses do not search in a three-bedroom street, and adding luxury items such as a swimming pool or jacuzzi can tend to put a property out of context with its neighbours. After all, birds of a feather tend to flock together...

Some estate agents also advise caution - not spending excessively on a property that is already seen as at the top of its price range, and thereby making it stand out among similar properties in the area. Another advises that certain improvements are only worth their cost if the owners are convinced they intend to stay in the house long term - and who can tell these days? - rather than sell up and move within a couple of years.

Will it work in France? Although as the previous post (below) indicates the French are 'starting to think more like Anglo-Saxons' and see their home as an investments as well as somewhere to live, transaction costs tend to be high, including agency fees, the notaire's fees and French government taxes. As a rule the French are reluctant to change areas, for eample to find work even in times of recession, because of family ties and responsibilities - children in school, spouse's own job, caring for ageing parents.

However, mong the principal reasons for moving are the need for more space, as children grow up and more bedrooms are needed, so any improvements that offer more living space as opposed to greater comfort will generally add value to a property, though all the cautions noted above also apply.

* The Telegraph online, 01 November 2011

French becoming more 'anglo-saxon' in their approach to property buying?

After decades of traditional thinking that you buy a property as a place in which to house your familly and create a life, it seems that the French are finally starting to look at property buying also as a form of investment - an approach that has always been regarded as anglo-saxon rather than continental.

According to a report from the group Credit Foncier, some 70% of French people questioned said that when buying their next property, they would also be keeping a close eye on its re-sale potential. This compares with a figure of just 50% from surveys taken 30 years ago. Principal reasons for buying however still include the feeling of security and the wish to avoid paying rent on a property they do not own.

A spolesman for the finance company notes that the doubling of property prices in the last ten years has also encouraged the French to look at buying property as a form of investment, with many of today's buyers wishing they had purchased their property a decade ago.

However, due to the French banks' traditionally cautious approach to lending, first time buyers are still finding it difficult to finance a property purchase, at a time when monthly rental payments are rapidly approaching the level of repayments of a typical mortgage.

One of the many effects of this is the inability of (young) workers to move to where jobs are more readily available. This last situation is being partly addressed by some employers investing in 'low cost' housing for their employees, to encourage greater mobility. This policy has been attacked by the state organisations responsible for providing social housing (HLM) but employer/investors respond that as France's housing crisis is so severe - 1 million new homes are desperately needed - they are doing their bit to ease th housing shortage.

Source: Le Figaro 15 October 2011

French Property News, October 2011

In this month's French Property News*, entitled The Business Issue, I have written the introductory article about the various ways you can set up and run a successful business in France. The article covers all the possibilities from the recently created auto-entrepreneur scheme (a simple form of self employment that can be combined with a job or retirement), options for limiting your business liability, and the use of either a French or British limited company as your chosen business vehicle.

I also also highlight which business sectors are in decline and those where you can expect to make a profit, and all you need to know about your business plan, qualifications, finance and how to get started.

The nearly 100-page business section of the magazine looks at a wide range of issues connected with starting a French business, including case studies, suggestions, more expert advice and regional reports.

*French Property News is on sale in newsagents and on subscription. Web http://www.french-property-news.com/

What the vendor leaves behind....

A recurring problem between vendors and purchasers is reaching an agreement on what is or is not included in the sale of a property - in terms of furniture, fixtures and fittings that are not strictly part of the building fabric.

Over the years, vendors have been accustomed to removing virtually anything that could be unscrwed - from light fittings to door furniture - to the surprise and chagrin of the buyer when he took over the property. As a result, some  notaires are now insisting that an explicit list of contents is drawn up and agreed by all parties, at the time of signing the compromis de vente (pre-sale contract). Sometimes in the case of a house that is sold empty and uninhabited, the notaire will include an 'indicative' list of what must not be removed by the vendors, without explicit consent of the buyer, between the signature of the compromis de vente and the acte finale.

It is advisable for buyers to re-visit the property shortly before completion in order to verify that the property has remained in the 'state it was at the time of signing the compromis de vente' as in signing the acte finale the buyer agres to accept the property 'as is' and has no further recourse against the vendor.

These general rules also cover issues like make alterations or changing the decor between signature of the initial and final sales contracts.

Trying to avoid paying agency commission

The rules governing the payment of commission to an agency responsible for selling your French property are strict and offer considerable legal protection to the agent. Confusion sometimes arises where the vendor reserves the right to sell privately (in this case signing a 'mandat simple' with the agency) and is approached by a potential buyer who has been previously introduced by the agent - with the objective of concluding a private deal and avoiding paying the agency commission.

Sales mandates - the document agreed between vendor and agency authorising the latter to market and sell the property - can have an active life of two years. This means that if a potential purchaser, originally introduced by the agency, approaches the vendor and attempts to conclude a private deal, the agency can claim its commission on the sale, according to the terms of the mandate, if this happens within two years of signing the original sales mandate.

In order to protect themselves and avoid any confusion, French estate agents ask potential buyers to sign a form known as a 'bon de visite' to prove that it was they who first introduced to them to the property offered for sale. 

If a potential buyer finds him/herself visiting the property a second time, through a second agency,  they should immediately inform both agencies, to avoid confusion. For their part, vendors should be aware of the legal consequences of trying to avoid paying an agency's commission. French courts invariably enforce the agent's rights in such cases.

Curious side effects of new CGT rules....

Following the French government's recent announcements (see below) on the changes in CGT applied to second homes, the estate agency group Century21 has stated that it received 500 cancellations of compromis de vente (pre-sale contract) and 1,500 cancellations of sales mandates (instructions to sell) from their clients within hours of the original announcement. The figures represent some 5% of their usual 75,000 annual property transactions.

Overall, sales of second homes represent just 7% of the French property market, although in most coastal/tourist areas - where the percentage of second homes can be as high as 80% of the local housing stock - the figure can be much higher. Nationally sales of second homes account for around 56,000 transactions annually our of a total 700,000 to 800,000 changes of property ownership.

CGT rules - final amendments

Further to my earlier post below, the French government has announced a final (hopefully) revised version of the proposed changes to the rules on Capital Gaisn Tax (CGT) applied on the sale of a second home in France, that is not classed as 'your main and principal residence' for tax purposes. The new proposals are as follows:

- 2% abatement of CGT for each year if the property is sold between 5 and 15 years since first purchased
- 3% abatement  each year during years 15 to 25
- 10% abatement each year during years 25 to 30

This replaces the former 10% per year applicable after five years of ownership, in years 6 to 15 inclusive, making the property free of CGT after 15 years of ownership. This is now effctively after 30 years of ownership.

The rate of tax (and a special social charge) is 32.5% of the capital gain - the difference between what you paid for the property and the price at which you sell it.

The new rules will apply for all notarised transactions after 01 February 2012 (and not earlier as announced).

If you are tax resident in France (for example, file an annual French tax return) and your property is classed as your main or principal residence, no tax is paid on the 'profit' (capital gain) when you come to sell.

Source: LeParisien, 07 September 2011.

Vendors - give your agent a chance!

A recent post on one of the French property forums prompted this note. A British vendor had set very strict rules relating to visits, on the grounds that he owned two large dogs who were albeit friendly somewhat intrustive, and likely to distract potential buyers. He insisted that viewings were by appointment at a fixed time - when the owners would then leave the property with the dogs - and after the visit, the agent was to telephone them with an 'all clear' at which point the owners would return. The system had broken down within days, the vendor complained. In my reply I tried to point out that while his intentions were undoubtedly laudable, arranging property viewings is not always straightforward for the following reasons:

- Almost all buyers leave too little time for viewings, sometimes unaware of the distances involved, and want to rush off to another appointment (with a rival agent!) instead of completing a series of pre-arranged visits.

- Buyers can turn up late without warning, arrive unannounced and without an appointment, and still expect to be taken immediately on a series of visits.

- Many vendors prefer visits by appointment, with adequate notice, and may refuse to receive visits during meal times, evenings, weekends etc.

- Visits may take longer than anticipated, resulting in a series of delays and sometimes the need to re-schedule appointments en route. 

- Vendors sometimes "forget" they have arranged an appointment and are not at home when the agent arrives with his potential client.

- Keys are not always where they should be! Some vendors insist on giving out only set of keys to be shared among a number of different offices or even different agencies. If a negotiator has arranged a series of visits he may be holding several sets of keys which will not be available until he returns to the office - perhaps some hours later.

These are just a few of the hazards drawn from my time as a negotiator inside a busy agency, with four offices, and eight or ten negotiators. The rule was that keys would be held at the office nearest to the property and returned as soon as possible after a viewing. Human nature being what it is, this did not always happen.

Vendors should try to understand the practical difficulties involved in arranging property viewings and be as flexible as possible in what is still a very competitive property market;

New CGT rules on sale of second home in France

As part of its austerity measures, the French government has announced new rules for the calculation of capital gains tax (CGT) on the sale of second homes - and certain other types of property, see below - with effect from today.

The principal measure is the abolution of the automatic abatement of 10% per per year of ownership, from years six to sixfteen, which had the effect of reducing the CGT to zero after 15 years. This will be replaced by a new calculation based on the rate of inflation during the period from initial purchase to sale. Details yet to be published on how this will be calculated.

In addition to second homes, the new rules will also apply to "empty properties, rental properties and land for building" (last three definitions also awaiting clarification) but will not affect main or principal residences, which are not subject to CGT on sale. To establish that your French property is your main or principal home requires proof of your resident status in France, for example a history of submitting French tax returns and being within the French healthcare system.

The new measures are expected to generate 180 million euros in 2011 and 2.2 billion euros in 2012.

Source: LeParisien 25 August 2011

Paris threatens short-term rental apartments

The mairie of Paris has issued a warning notice about the growth in the number of small apartments and studios designed to be let to short-stay visitors, as an alternative to using a traditional hotel. The mairie estimates that there are a minimum 20,000 (and possibly up to 40,000) such properties, often located in prime central tourist areas, and their use as rental properties is exacerbating the shortgage of suitable long term accommoation available to Paris residents. Complaints have also been voiced by hoteliers concerned about the possible threat to their livelihood.

A trawl through the many websites addressed primarily to American, English and European visitors shows that even a small two-room apartment in a good location can be rented for 1000 to 1500 euros per week, or up to 6000 euros per month - with an average 60 to 100 euros per night not uncommon. Investors in rental property are not unnaturally attracted by these potential gains, which are far greater than the income that can be earned through traditional long-term renting (which in theory should be for a minimum of one year furnished and three years unfurnished).

Where there is a mix of occupants within a building, long term owners and renters compain that their lives are disrupted by the constant coming and going of short-stay visitors.

Seasonal renting is in theory controlled under article 631-7 of the Construction Code and requires an application for a change of use, and in a recent case an English owner has been fined 25,000 euros for not complying with the law. Most owners apparently claim they are unaware of the regulations.

In light of these revelations, the Paris housing authority has announced that it is currently studying the problem, and clearly any solution will have to offer a delicate balance between the undoubted popularity of short-term rentals, as an alternative to hotels (many of which have failed to keep pace in terms of modernisation and standards of comfort); the importance of nurturing the French tourist market; and finding a solution to the perennial shortage of long-term rental properties in the French capital.

Outside Paris, in the popular Mediterranean coastal areas, many studios and apartments are purchased as 'second homes' by owners with a view to securing their retirement, and rented to holidaymakers during the summer season. As a result entire buildings of fifty or more apartments can remain empty and unused during nine months of the year. The few fulltime residents (owners or renters) who choose to live there all year round and for whom it is their principal home are obliged to suffer the July/August invasion by large numbers of seasonal visitors, with the attendant disruption to their daily lives and the inevitable increased wear and tear on the building.

However, apartment owners have not had it all their own way, with an average 30% drop in seasonal rentals recorded for 2010 in Languedoc-Roussillon, and the signs are that numbers are currently down in 2011. Among the reasons cited for the decline are the unsuitability of many smaller apartments (often dating from the 1960s) for seasonal use - for example those without a balcony or terrace or not set in grounds that include facilities such as a swimming pool; the high prices demanded by owners; and the reluctance of the latter to invest in modernising and refurbishing their property. There is also increasing competition from holiday camps, many of them equivalent to small villages with a range of free attractions, supermarkets, sports areas etc, and the availability of ultra-modern self-contained chalets and villas at affordable prices.

The bad weather during July and the downturn in the French economy have also contributed to the decline in numbers - and their spending power, according to the shopkeepers and restaurateurs I have interviewed.

Keeping an eye on your syndic

It is about this time of year that owners of co-ownership properties - apartments or villas within a complex offering shared facilities - receive their invitation to attend the annual general meeting of the co-owners (co-propriétaires). The meeting discusses the expenditure during the previous 12 months, agrees the budget for the comming 12, authorises any addtional expendicture required (for maintenance, decorating, lift repairs etc) and gives or occasionally refuses applications from individual owners, for example to add a closed loggia to their terrace or balcony.

Co-owners have a right to vote on all these issues, according to the number of parts (known as tantièmes) that they own in the property - in additional to the freehold of their apartment or villa - and in proportion to the size of their property. An owner of a four-bed apartment accordingly has more voting power than a studio. Despite the importance of the issues raised at the AGM and their effect on the building chargers, paid by the owners, research shows that the majority of owners do not bother to attend the AGM or even check the annual report, leaving decisions to a small handful of residents or the residents committee (conseil syndical).

With the takeover of many local management firms - usually estate agencies that offer this service in addition to selling and renting properties - by large glomerates (among them Foncia, Lamy, Nexity) which are often owned by banks and insurance companies, several residents pressure groups have reported widespread abuses, includingover-spending by professioal managers mainly due to the laxity of the residents and the residents committee. At the oppsotive end of the scale, many building syndics (managers) have failed to maintain the property correctly, and properties have now run out of funds to carry out urgent repairs, as the residents cannot afford, or refuse, to pay the increased charges now required.

To take a local example - a block of 60 apartments ranging from 2- to 4-rooms - a two-person residents committee (far too small for a building this size) had simply gone through the motions of verifying that cheques paid by the syndic matched the invoices submitted but had made no effort to check that the expenditure was justified. Now faced with huge additional charges for external and internal painting, two activist residents went through all the recent figures and presented their findings, including numerous examples of uncontrolled over-expenditure, to a shell-shocked meeting of residents. The two were personally attacked by the managers for 'nitpicking' but the upshot was that the residents are now considering sacking the managers and running the building themselves, with an enlarged residents committee. They realised that among themselves they had experts in building maintenance, cost management and legal issues.

This example - and there are others - shows that it pays (literally) to take an active part in the management of a co-ownership property, including offering your services to the residents committee, and at very least studying the agenda and minutes of the annual general meeting, and using your power to vote. This can be done by proxy if you are unable to attend in person. After all, it is your money they are spending.

French Property News August 2011

In this month's issue of French Property News I look at the importance of studyng a number of documents that you can consulted before taking a decision to buy a French property - or not. These include the cadastral plan of the area where your chosen property is situated; the plan local d'urbanisme which will define whether a particular sector is for example zoned for housing, commerical development or designated as 'green space; and the plan de prévention des risques naturels which is the report concerning risks such as fire, flooding or other hazards, and how these make affect what can or cannot be constructed. These documents should be available via the estate agent, the notaire handling the transaction or from the mairie.

If you are considering buying a property such as an apartment within a co-ownership building, essential documents to consult include the rules of the syndic (building management) governing issues such as sub-letting, keeping pets or working at home. Also important to study are the recent reports of the annual general meeting of co-owners which will give an idea of any expenditures voted (for example, for external painting or modernigisng the lift), the cost of which will be inherited by the new owner. The latest reports of the syndic should be provided by the estate agent or notaire.

Source: http://www.french-property-news.com/

Relocation 66 - relocation service in Pyrénées Orientales (66)

One of the services we offer to clients is Relocation 66, designed to help ex-patriates and others moving to the Pyrénées-Orientales (66) region to work, and needing to find a suitable home on a short term or more permanent basis. Areas covered include of course Perpignan the department capital, as well as its neighbouring suburbs and attractive coastal towns, most of them less than 25 minutes drive to the city centre.

The service includes initial search for suitable properties for sale or rental, advising on the area, drawing up a short list, accompanying clients on visits with estate agents, and advising on all the formalities of acquisition and moving-in - in short everything from installing a telephone and internet to advising on local shopping.

Our fees are designed either as an all-in package from initial search to completion or can be paid on an hourly, daily or half-daily basis as you wish. We are totally bi-lingual English and French, with ten years experience in the region and the French property business. Contact Peter-Danton de Rouffignac, a former negotiator with one of the area's largest independent estate agencies,  on + 33 (0)4 68 81 16 07 any time.

Parmi les services que nous proposons à nos clients s'appelle 'Relocation 66' qui aide les français et les expatriés à s'installer dans la région, à Perpignan et dans ses environs. Cette service est tout à fait compéhensive - recherche des maisons et appartements à vendre et à louer, accompagnement pendant les visites, assistance avec toutes les formalités administratives pour vous aider vous installer en tout confort.
Je suis anglais mais parle couramment français et j'ai 10 années d'expérience dans la région et dans le métier (inclus 2 ans comme négociateur dans une des plus grandes agences de la région).

Nos tarifs peuvent etre taillés à vos besoins - un 'paquet à prix fixe, ou par jour, par mi-jour ou à l'heure. Veillez me contactet à 04 68 81 16 07 sans obligation et en toute confiance.

Peter-Danton de ROUFFIGNAC MA LLM peter-danton@orange.fr

French Property News, July 2011

In this month's French Property News I have brought readers up to date about Ian and Lori Sutton's search for a property in France and their plans to creat an organic olive grove. Now the owners of a house and a three-hectare piece of land, Lori has to start the process of improving her French and finding her way round the inevitable bureaucracy in order to achieve her dream.

French Property News July 2011. http://www.archant.co.uk/

The delicate art of price negotiation

At some stage in the process of buying a French property, there comes a time when vendor and purchaser must agree on a price, which may be below that advertised. It can be a difficult moment and writing in the English Daily Telegraph property specialist Christopher Middleton has described the process of buying and selling as 'a war, both psychological and financial. We don't so much purchase a house, so much as prise it out of the hands of the people who own it. We don't so much as sell a house, as surrender it to invaders. And right up to the last minute, the deal can be sabotaged by an act of panic or greed on either side'.

Middleton was writing mainly about the British market, but here in France I have witnessed acrimonious exchanges between vendor and purchaser, largely because neither has mastered the delicate art of price negotiation. And the occasional collapse of a deal for want of a little leeway, when neither side would concede over a matter of two or three thousand euros on a property typically costing a hundred times that sum.

Principal errors on the buyer's side include:

- assuming that property prices in France have dropped dramatically everywhere. They have not and in most areas they are going up.

- assuming there is a magic figure - 5%, 10%, 15% - that the vendor has tacked onto the asking price in order to enable hm to drop the price in negotiation.

- assuming that because a property you like is beyond your budget the owner will reduce the price in order to help you fulfill your dreams.

- you want to add a fourth bedroom or a swimming pool on the back lawn, assuming the owner will help finance these for you by reducing the price.

- making a verbal offer during your first visit; this puts the owner on the spot and your offer is likely to be refused. Difficult then to repeat the same offer this time in writing (the correct procedure, allowing both sides time for reflection).

Common errors on the vendor's side include:

- pricing the property not on its market value but on the amount he wants to receive to pay off his debts or finance his next project.

- not emphasising the property's hidden plusses - a quiet location, ready-to-move-into condition, scope for alteration or expansion, garde or terrace not overlooked and/or with plesant views.

- in a co-ownership building, such as an apartment block, not listing works recently completed (outside painting, interior decor, new lift etc) and paid for by the vendor, which the new owner will enjoy for many years to come.

- announcing in advertising that he is 'open to offers' - a clear sign of incorrect valuation and desperation.

- turning down a verbal offer immediately. Better to ask the vendor to submit a written offer for consideration, preferably through his agent.

Prior research by both the vendor (state of the market, prices of similar local properties) and the buyer (the same but including a maximum budget not to be exceeded) will help ensure that both parties enter into negotiations armed with accurate information to back up their offers and counter offers. An unemotional, business-like approach can go a long awy to reduce the stress of buying and selling French property.

Source: Christopher Middleton, Daily Telegraph,  02 July 2011 http://www.telegraph.co.uk/ See also "101 Things an estate agent should tell you" Greene & Co. http://www.greene.co.uk/

EU pilot scheme aims to guarantee 'legal certainty' when buying property abroad

The European Union has been funding a pilot scheme set up by the European Land Registry Association which offers buyers of property outside their own country legal protections that could be enforced by the laws of their home country.

The scheme has been tried out in Holland and Spain using a system known as CROBECO (Cross Border Electronic Coveyancing). As a result Dutch law could apply and compensation awarded in cases of breach of the purchase contract for a property in Spain.

The ELRA points out that the sales transaction could even be processed in the buyer's home country by a local conveyancer, making buyers more confident of purchasing property abroad, as the scheme is gradually extended to other European countries.

How this proposal could eventually affect property purchases in France remains to be seen. French notaires currently enjoy a monopoly of property conveyancing in France, and even if British buyers choose to employ a local lawyer to check the purchase contract, it is the accuracy of the original (French) documentation, combined with the notaire's local knowledge, that ensure that the transaction is transparent, legal and fair to both parties.

Further information Daily Telegraph Overseas Property Section, Sean O'Connor 15 June 2011. http://www.telegraph.co.uk/

Early retired wanting to settle in France

Under pressure from the Eropean Commission, the French government is being forced to re-think the rules changes introduced in 2007, which required British citizens below retirement age to provide their own private medical cover if they wished to become resident in France. For many people this has meant paying for expensive private health cover or having to change their plans if they found that a pre-existing medical condition ruled out private insurance.

As a result many have had to defer their plans to move permanently to France or have restricted their stays to the legal limits and remained within the British health service, until they reached retirement age. In the case of a married couple, it is often the wife's earlier retirement age which can allow a permanent move, with the husband's health care linked to that of his wife until he too reaches retirement.

It is likely that the French government will be obliged to allow British citizens caught in this situation to have access to the CMU (the French state health care system), which provides health cover for those not in employment or self-employed, with 70% medical costs covered by the state (with some serious conditions such as cancer subject to 100% cover). As a rule French citizens pay for private top-up insurance to cover the remaining 30% not reimbursed by the state, using one of the mutuelle insurance providers, and British residents below official retirement age and not working will be allowed to do the same.

Talking to local residents, it is clear that they could be paying perhaps as little as one-fifth of their existing private medical cover, once they are allowed access to the French state system and pay only for top-up medical insurance.

Property buying agent?

This new term has been given another airing in today's Daily Telegraph, in an article highlighting the use of property searchers or 'buying agents' (their term) by potential buyers, this time in Italy.

It is a term we have resisted using, along with the French chasseur de biens (literally 'property hunter') as searching for French properties forms a relatively small part of our business. We find that local French estate agents are well informed about the local market and it is rare that they are unable to track down properties that are for sale or likely to come onto the market.

Note that many 'property searchers' have in fact links to estate agencies. In Britain some established estate agencies have even set up property search subsidiaries, duplicating the work of agency negotiators who should be presenting their clients with a list of properties for sale, or more pro-actively making enquiries among their colleagues. In France, some property finders advertise a range of properties in much the same way as professional estate agents, so that it is difficult to understand how they can claim to act independently for the buyer.

What we find most clients appreciate is our expertise in ensuring that the buying process, including initial search, procceds smoothly, from checking the inevitable paperwork but more importantly ensuring that the property is as described, and there are no hidden surprises. This involves being in place, understanding French law and the property buying process, and drawing on ten years practical experience of  overseeing every type of transaction, from beach-side holiday apartments to land destined for agriculture.

Don't rely only on printed information when buying property

A couple of recent cases have prompted me to emphasise again to buyers of French property the need to physically check for themselves (or ask someone to do it for them) the land or property they are intending to buy, and its surroundings.

In my experience I have found that Notaires will - in good faith - primarily rely on the documents provided to them by vendors, estate agents and the local mairie, but that these may not always be up-to-date or one hundred per cent accurate. A typical example is the plan cadastre which identifies the property and its reference number for tax purposes.

In a recent case, when I visited some agricultural land on behalf of clients I found that the property included a two-bedroom house built some 15 years previously, but which did not appear on the cadastral plan. When I visited the local mairie they said 'they knew about it'; the vendor insisted that the mayor had visited the property and had said 'no problem'; while the chief executive at the mairie bluntly informed me that the 'house was illegal, built without planning permission, and was sited on agricultural land which was also classified as a zone rouge' - in this case due to high risk of flooding.

The buyers subsequently withdrew from the purchase but in early discussions with the Notaire he was unaware of the house, as he was working only from the cadastral plan which did not show it.

In another case, involving purchasers of agricultural land they intend to cultivate, a forage (deep well) did not appear on the plan, and an irrigation channel bordering two sides of the property was interpreted by the Notaire as a farm track. A clause was later inserted in the purchase documents to include the forage and the irrigation channel, together with their attendant rights to draw water. There is still a question pending about the precise boundary line as there is a second well adjacent to the farm track (which runs alongside the irrigation channel) with what looks like provision for an electrical supply (EDF pole and junction box and metre). All these elements are important to the buyers who plan to cultivate the land.

These cases illustrate the need to physically check your French property before buying and not to rely solely on the official documentation.

French property insurance - buy locally?

One piece of advice that I regularly offer to clients and friends is to buy their French property insurance locally. Many choose to spend hours on the internet seeking a quote that will offer a few euros less but my question invariably is How do these online companies react when you come to make a claim?

In contrast I have used the local office (agent) of a French national insurance company for the ten years that I have lived in France, dealing with the same owners and staff during that time. Most questions are dealt with face to face as the office is only a few minutes from where I live and answers provided right away. The office has often arranged instant insurance cover for new buyers literally on their way to the Notaire's office to sign the final papers, and who have forgotten they need to provide proof of insurance when buying their apartment.

They have also paid out sums on account to help clients facing a claim and needing immediate financial help to finance a repair (following a broken water pipe and flooding) or to get their car back on the road after an accident. They recently sent an expert and estimate for repairs within 24 hours and advised the apartment owners that dampness in their living room wall was due to a building fault and therefore the responsibility of the building management. When a friend's car was written-off due to a breakdown, the office cancelled the insurance cover immediately and even refunded half of the current month's premium as it had occurred on the 15th.

Sometimes it pays to shop locally.

Diagnostic report before selling French property

A question arose recently on one of the French discussion forums whether the 'presence of a few English style electrical sockets alongside some French ones' was likely to cause problems on selling the property - and at the time the diagnostic report had to be prepared.

Two points arise here. The first is not to under-estimate the length and complexity of the latest diagnostic reports, which in the section dealing with the property's electrical installation, can run to several pages, and include a detailed survey of every room, commenting on each single power outlet. The presence of UK-style sockets and attendant wiring will cause serious problems, as there have never been any French norms approving this type of electrical installation. A qualified French electrician has the right in extreme cases to inform EDF who may cut off the supply until the installation is brought up to current norms.

Second, it seems inconceivable that anyone would buy a French property that had UK-style circuits and power outlets or that an owner would subsequently install these after purchase, against all the advice and information readily available on the subject in the French forums.

French property transactions to rise in 2011?

According to a quarterly report from FNAIM, the estate agents' body, the number of French property transactions is expected to rise to 750,000 during 2011, compared with 850,000 during the best of the boom years and 570,000 during the worst.

Currently 50% of transactions concern existing property owners selling their property and trading up (or down?), and the remainder a mix of buy-to-let investors, second home buyers and first-timers - the latter given a boost by the revised PTZ (zero per cent loan) addressd to first-time buyers.

Estate agents fear a shortage of saleable properties as owners hold on in expectation of still higher price rises, which some commentators say may be of the order 5% to 6% by September this year.

Recent price rises for apartments have been highest in Paris, Lyon, Marseilles, Toulouse, Strasbourg and Cannes; and more 'modest' in Biarritz, Limoges, Nimes, Orléans and Poitier. Only Annecy, Chateauroux, Perpignan and Reims have registered price reductions.

French property title deeds

Several clients have recently asked me about the 'title deeds' to their French property, as they have not received anything from the Notaire many weeks or even months after completion of the purchase of their property. This is at best unusual and could be worrying as it is the titre de propriété which sets out who is the owner and under what conditions the property was purchased.

When buying a French property, the Notaire handling the transaction will first prepare a pre-contract known as the compromis de vente which sets out the terms under which the buyer intends to buy the property, with details of how it will be financed (single payment, mortgage etc) and any conditional clauses (clauses suspensives) the parties may have agreed to - such as buying subject to a satisfactory survey or obtaining a mortgage. The buyer also has a period of reflexion before he is finally committed to buying.

If all goes well, the Notaire will proceed to the next stage - preparation of the acte finale which repeats much of the information contained in the compromis de vente but this is the final contract setting out the terms under which the buyer agrees to buy and the vendor agrees to sell. The transaction is completed once all parties have signed this document.

It is at this point that the buyer becomes the owner of the property and the Notaire will give him several originals of a signed attestation proving that he is the new owner. Meanwhile copies of the acte finale and supporting documents are sent to the nearest land registry (bureau des hypothèques) in order to register the sale and details of the new ownership. (The new owner will need the attestation for matters such as taking over the utilities, getting a phone installed etc.)

The process may take several weeks but once the transaction has been duly registered, the Notaire should send a copy of the titre de propriété (title deeds) to the new owner, together with his final account (fees and taxes associated with completing the transaction). If you have not received a copy of the titre de propriété after say, six months, you should contact your Notaire.

Further information about the procedures for buying French property is available from us (sent as an email attachment in Word) on request at no charge.

Relations with your syndic

Most French apartments and housing complexes are looked after by professional managers, known as the syndic, who are appointed for periods or one year or longer by the resident owners by vote at the annual general meeting. The syndic is normally aided by a small residents committee and will be responsible for overall day to management of the complex, in such matters as cleaning, maintenance and repairs, and for major expenditure for outside and internal painting, replacement of the lift etc. which occur periodically.

Each owner enjoys the right to occupy his own apartment and generally can decorate or alter any aspect within its four walls, provided this is not prejudicial to the building - such as removing a load bearing wall. Permission will normally have to be sought to alter an outside terrace or balcony, which forms part of the building's 'common parts' of which the owner has exclusive use. This distinction is important, as an owner cannot for example sell is terrace or balcony independently of the apartment, or decide to sublet it it to someone else.

Differences can occasionally arise where one resident is given permission for certain works and another is not, which may leave the dissatisfied owner in conflict with the syndic. In a recent case I have examined, an English resident has been refused permission to lay tiles on his ground floor terrace in what appears to be an exactly similar style to that of two neighbours living in the same complex. The area is currently a mix of pavement and rough ground, in the condition it was left by the developers, and clearly any improvement will enhance the quality of this space not only for its owners but also his neighbours. It is unclear as yet why permission has been refused and arriving at a solution will require an examination of the two previous cases (where permission was given) and the grounds on which the third resident was refused. Apparently only one neighbour is objecting, when normally such permissions are subject only to a majority decision at the annual general meeting and do not require unanimity. It will be an interesting case to follow.   

Buying agricultural land

Agricultural land - classified as non-constructible - in France is frequently offered for sale, and purchased by buyers in the hope that one day it may be re-zoned for building, or more commonly for use as leisure land (terrain de loisirs). In virtually all cases, the French organisation SAFER - which exists to protect agriculture and agricultural land - will automatically have a droit de pré-emption (right to buy) if they judge that the land is needed for farming.

SAFER's interest will trigger a delay in completion of the purchase of two months and in the absence of a reply within that time, the purchase can go ahead. This right is similar to that of the local commune to purchase land and buildings, if they are considered essential to the public interest - such as demolition for road widening. The existence of this option is written as a condition into every pre-contract (compromis de vente). The notaire handling the transaction will satisfy himself that this option is not exervcised before completing the sale.

If the local commune wishes to exercise their right of pre-emption they must normally agree a fair market price with the vendor, who is turn could decide to withdraw his property from sale.

The use of leisure land is restricted to occasional occupation and subject to strict local rules and guidelines that will be applied by the mairie or the departmental préfecture.

Spanish property woes and the French market

Reading the latest account of Spain's troubled property market can provoke comparisons with the relative security of the French property buying and selling system.

Writing recently in the Guardian newspaper, Rupert Jones has highlighted not only the surplus of properties empty and for sale - an estimated 600,000 new and 200,000 part completed - and the dramatic decline in sale prices. Official figures from the Bank of Spain talk of a 17% reduction since 2007, based on estimated values, but estate agents say that the real drop is prices can be between 20% and 50% in some areas of the country.

In addition to the banks holding thousands of repossessed properties which they are required to try and sell after two years, many Spanish owners are competing with foreign investors in trying to offload their holiday properties. In contrast with France's 10% of second home properties, an RICS study quoted in the article estimates that one fifth of Spanish households own a second property, often as an escape from an over-crowded urban apartment, which may be occupied by family several generations. In addition Spain boasts Europe's highest level of property ownership at 82% with a tiny rental market concentrated in Madrid and Barcelona.

A business consultant is quoted as saying that as a result "there is an entire generation of young Spaniards with a millstone round their becks. They will have to work their whole lives to pay for houses now worth half what they bought them for".

Could it happen in France? Certainly there are reported price reductions in some areas, but rarely more than 5 or 10 per cent, with price increases routinely recorded in inner cities (led inveitably by Paris), according to figures provided by Notaires de France and the estates agents' body FNAIM. France's traditionally cautious bank lending policies - based on the customer's ability to repay rather than the notional value of the property - while often crticised as inhibiting entry to the market, have prevented the rabid speculation witnessed in Spain. The property market has been given a fillip by the French government with schemes such as the zero per cent loan for first time buyers recently introduced.

In contrast also to the scandals of "illegally" contructed Spanish properties, France's system of property land registration, as well as zoning policies that forbid construction in areas of high risk from hazards such as flooding, ensure that property transactions are legal and transparent, and fair to both parties.

Source: Rupert Jones, The Guardian, 02 April 2011.  

Photo: AFP/P Dozo

Agency commissions

The argument about who pays the agency commission on sale of a French property is as old as the hills, whether it implies that the buyer pays more or the vendor receives less.

Properties sold by French estate agents are normally marked as 'F A I' - frais d'agence inclus (including agency fees) - and the figure expressed in Euros is the price at which the property is offered for sale. Arriving at a correct sale price is an inexact process, as it is invariably a combination of the owner/vendor's aspirations (the highest price possible!) and what the agent considers the property is worth, in relation to the local market and similar properties offered for sale. A price reduction may encourage a quick sale, if this is regarded as below the market price.

As property prices tend to fluctuate in reality by few percentage points, there is relatively little room for manoeuvre.  It is rarely possible for a house to sold at the market price plus agency commission on top, as this would exceed the market price by too large a percentage.

The picture becomes confused when there is talk of the 'nett vendor' price, a term widely (mis)used by owners about to sell, but employed by agents to indicate the amount the vendor will receive after deduction of the agency commission and any other costs, such as capital gains tax.

Buyers applying for a mortgage may find that their lenders may wish to exclude the agency commission (and other transaction costs such as Notaire's fees, taxes and land registration charges) from the loan they are prepared to offer. But this is like borrowing money to buy a car and being told the loan will only cover the manufacter's wholesale price to the garage and not the costs and profits associated with the showroom.

Buyers facing this problem with their lenders should insist that the price stated is the price at which the property is offered for sale and that is the price they are expected to pay.

Preparing your property for sale

Once again the French property programme on M6 Maison à vendre offered some useful advice for sellers, based on two case studies - a village house just outside Lille, and a fairly nondescript pavillon near Paris.

It was clear from the outset that the owners of the first property had an exaggerated idea of its worth - even in its deplorable state before the makeover team moved in. Talking originally of a sale price of 400,000 euros, which had apparently been confirmed by an 'expert', by the end of the programme they were looking at offers of just 250,000 euros, with no certainty of a buyer. Among the efforts needed to make the house presentable for sale was the removal of a veritable menagerie of animals, including rabbits, chinchillas, several geese, chickens, cats, a goat and two lively dogs, and repairing the damage they had caused over the years to furnishings and paintwork.

In contrast, the standard concrete bungalow attracted four offers, including one accepted at the full asking price, after minimal decoration and refurbishment - on the first day of being offered for sale.

French Property News - February, March 2011

In February's issue of French Property News I offer some suggestions on how to present your French house or apartment ready for sale, including some room by room recommendations about what improvements will add value and those that do not. Essentially, the property should be impeccably clean and tidy, and generally de-cluttered. Owners should attend to all those minor repairs and renewals they have kept putting-off and which are a certain deterrent for would-be purchasers.

Going back to basics, in the March issue just out, I offer some suggestions on how to hold onto your French second home, if you are tempted to cash-in your property asset in time of crisis. Surprisingly, the majority of French second homes are sold by their owners within 10 years of purchase, despite the disadvantages of capital gains taxes and sometimes the inability to recoup the high transaction costs (agenncy commissions on buying and selling, Notaire fees, land registration costs and taxes).

Instead I suggest ways to hold onto your property, through letting long or short-term, or if it is your main home and the situation is serious, returning to the UK to work for a while, and renting out your French property for a year or more. Harsh decisions may have to be made but selling-up is often not the best or only option.

French Property News is available in newsagents or see http://www.french-property-news.com/

(Picture shows lovely holiday studio at Argelès-Port recently sold by its owners within a few weeks of going onto the market).

DPE - Certificate of energy efficiency

Since January 2011, all French properties offered for sale or rental must include a certificate of energy efficiency (DPE) in the property description, whether offered privately or through an estate agency. This is in addition to the technical reports (diagnostiques) already required covering lead, asbestos, termites, state of the electrical installation etc, with the added requirement that the DPE must be included in the property description as soon as it is advertised for sale or to let. Traditionally, the technical survey - which has to be commissioned and paid for by the vendor - was not done until a buyer had signed a pre-contract (compromis de vente) and was committed to purchase the property.

The new DPE uses a an efficiency scale from A (energy efficient) through to G (low energy efficiency) and the full report offers indications of what can be done to improve eneergy efficient, with estimates and costs and potential savings.

In practive energy savings may be quite small and can outweigh the cost of suggested improvements. While many properties in the Mediterranean south may be rated as energy inefficient, the low rating is unlikely to deter potential buyers looking for a second home, occupied largely during the warmer summer months. However, as more holiday properties become permanent homes and occupied all year round, would be purchasers should be aware that winters on the Mediterranean can be chilly for a few weeks either side of Christmas, though temperatures rarely drop below 1 degree C.

Managing your French bank account

Buyers of French property, whether a second home or for permanent living, need to open a French bank account as soon as possible, preferably before completing the purchase transaction. Normally up to four weeks are needed between your initial application of the bank of your choice and the arrival of your cheque book and debit/credit cards. These are essential to enable you to pay for local purchases and to settle the bills that will almost immediately arrive from utitilites (water, gas, electricity etc) as the accounts are transfered from the vendor into the name of the new owner.

Th French government has recently turned its attention towards the operation of its High Street banks, and introduced a number of reforms in response to complaints by consumers and lobbying by magazines such as Que Choisir?, a sort of French version of Which?. French banks are now required to publish clear and up-to-date information about their basic services, including tariffs and charges. Since November 2009 they are also obliged to help customers in the process of transfering their account to another bank, without charge and within 10 days of asking. The new bank should open an account within 5 days of the transfer.

In line with a European directive of 11 March 2009 - in response to the world banking crisis - the French government now guarantees all banks accounts up to a level of 100,000 euros (decree of 1 October 2010) per account, per branch. The timescale for reimbursing the client, in the case of bank failure, has been reduced from two months to just 20 days. Banks have also been obliged to guarantee greater security in the use of debit and credit cards, an important measure in view of the proposed phasing-out of cheques.

Note that cheques are still widely used in France, as cash payments are forbidden above certain levels, and it is an offense to write a cheque without adequate provision. If you overdraw on your account without authorisation, you will be penalised by the bank and possibly obliged to close your account.

Choosing your bank can be tricky and it is best to sound out friends and acquaintances about their personal experiences, as the efficiency of local branch staff can vary widely. Online banking is routinely available, provided you are satisfied with the level of internet security, although online payments currently represent over half of all banking fraud for just 7% of transactions!

Source - Maison Magazine January/February 2011

Buying a business in France - 'murs et fonds' explained

As part of their search for a new lifestyle, some property buyers in France are also interested in buying and taking over an existing French business - perhaps as an alternative to starting a business of your own. The idea has its attractions as well as being a potential minefield of problems, as the new owner will inherit not only the business, but also its premises, equipment, stock, leasehold or freehold premises, existing staff, suppliers, customers and good will, plus any ongoing contracts and possibly outstanding debts and loans.

All of the above are included in term 'fonds de commerce', to which might be added 'les murs' (literally the walls), meaning that the purchase would include a freehold property, as well as fixtures, fittings, stock and goodwill ('les fonds'). Arriving at a valuation of 'les fonds' can be difficult and will depend to a large extent on the accuracy - and honesty - of the owner's financial records. Businesses receiving a high percentage of payments in cash, such as bars, restaurants, retail shops etc, are routinely suspected of concealing part of the takings, in order to reduce tax and other liabilities.

In order to arrive at a correct valuation of 'les fonds' the would-be purchaser will have to rely on his/her own expereicne of running a similar business, the opinion of an expert valuer and personal observation - for example, is the café or restuarant you are thinking of buying really full on Saturday evenings?  What would be the total takings if you added up the number of customers multiplied by the price of an average meal from the menu?

Goodwill may be difficult to establish, relying as it does on customer loyalty. If for example the current owners of the restaurant you have your eye on are going to re-open another one just a few streets away or even in the next town, a lot of their existing customers may follow them. If you are contemplating buying a rundown business or considering making a radical change, the value of the existing customer base may be very little - say, you are turning a traditional French café into a brash English pub!

Businesses located in holiday resorts and existing on seasonal trade rely on an annual influx of mainly new customers, with very little repeat business year on year. The exceptions may be some hotels, gites or camp sites, but the percentage of holidaymakers returning every year to the same resort is very low. Consequently there is little goodwill that can be assigned a monetary value, although turnover from previous years can give an indication of what might be exprected in succeeding years.

In conducting your search for a business reliant on passing trade, you enquiries should include any future plans for the neighbourhood that might affect the location - for better or worse. New road schemes can affect traffic flows or the prospect of a new lycée oppostive your premises may be good or bad news depending on your trade.

Business owners tend to exaggerate the value of goodwill, including location, but careful observation can help establish what this aspect of a business - largely unpredictable and totally intangible - is really worth to you. You might in the end decide to acquire you own premises and start your business from nothing. It may be the cheaper option in the long run.

French Property News - January 2011

In this month's issue I look at ways in which buyers of homes in France can hang on to their property, during a time of recession and when many owners contemplate selling-up and returning home. This is often not the best solution, particularly at a time when the market is depressed and there may be a glut of secondhand properties for sale. Even heavily discounting the selling price may not be sufficient incentive to off-load a property quickly if other factors are present which prevent a quick sale - poor location, state of repair, size and disposition of rooms etc.

Instead I suggest ways of reducing costs, and looking at the possibility of letting a second home long-term or for the summer season. There is still a good rental market for the right type of property in the right location - larger family homes close to public transport and conurbations where people travel to work, studios and smaller apartments in university towns, and holiday rentals on the Mediterranean and Atlantic coasts. Property seekers and workers on temporary assignment are also potential users of furnished rented accommodation over the short and medium term.

Downsizing is not always a cost-effective option, due to high transaction costs in France. If you are thinking of selling one property and buying another, you need to facor in two sets of agency fees (5 - 10 per cent of the sale/purchase price) and the Notaire's fees and other costs (around 7% of the purchase price). You may find that you are spending 20,000 euros or more - money that is not recoverable or reflectded in tangible assets such as a home extension or a new kitchen! - just to make the move, when it might be wiser to stay put and wait for the market to improve.

Source http://www.french-property-news.com/

Self-employed with limited liability

From 01 January 2011, those running a small business in France can opt for the new statute - an individual enterprise with limited liability (EIRL). Those who are already self-employed or auto-entrepreneurs as well as new business creators can choose this format.

This new business model is designed to protect the entrepreneur's personal assets (such as his home) in the case of business failure, by separating personal from business assets. In the event of a business failure leading to legal action by creditors, only those assets previously declared for use exclusively in the business - known as the patrimoine d'affectation -  could potentially be seized in order to repay creditors. Typical business assets would include business premises, the value of a lease, machinery and equipment.

In registering the new enterprise at the local centre de formation d'entreprise (CFE), a list of business assets is drawn up and items with a value exceeding 30,000 euros require professional valuation. Forms are available from local CFEs and registration is effected by chambers of commerce, chambers of trade etc as appropriate according to the nature of the business or occupation. Registration costs are expected to be around 55 euros.

The newly constitued EIRL is required to open a separate business bank account and to maintain proper accounts. There is also an obligation to file annual accounts and statements of affairs, details of which have yet to be published.

The owner of the EIRL can choose to be taxed individually on his revenue from the business, or the EIRL can choose to be taxed under the corporation tax régime (IS or impot sur les sociétés). The latter option offers a number of advantages if the EIRL wishes to retain funds (reserves) in the business. It is not however open to auto-entrepreneurs.

Although slightly more complicated to set up and run, the EIRL offers considerable protection to the business owner, which is similar to the position of directors of limited iability companies such as the French SARL, and guarantees protection of his personal assets such as his home.

Further information can be found on http://www.eirl.fr/ and a declaration can be made online at http://www.guichet-entreprise.fr/ or by visiting your local CFE.

Source: APCE (Agence Pour la Création d'Enreprises), January 2011.

New rules for French estate agents

The French government has introduced new leglisation, applicable from 01 January 2011, concerning the receipt of client funds by registered estate agents. In addition to declaring 'sur l'honneur' that they do not intend to receive client funds, agents electing for this option will have their carte professionnelle marked accordingly. The form of wording will be 'non-détention de fonds' as well as 'absence de garantie financière' as appropriate.

French estate agencies which accept funds from clients - such as the traditional 10% deposit paid by the buyer when making an offer on a property - are required to provide guarantees and insurance cover for the amounts likely to be received, and to display a certificate at their premises indicating the name of their insurers, the sum insured and the policy reference number.

Many agencies choose not to accept client funds, and in this case any monies paid on account - such as the purchase deposit noted above - by a client, are instead paid to the Notaire appointed to handle the transaction,  and held in their special sequestered client account, to which the balance of the purchase price will eventually also be transfered.

The new legislation helps to distinguish clearly between agencies authorised to receive deposits and those which are not. The French estate agency sector is already highly controlled by legislation and licensed by the regional Prefecture, and the new rules offer an additional safeguard for clients using their services.

French property discounts average just 5.21%

According to a recent report by the French estate agency group Century-21, the average discount negotiated by buyers of French property is just 5.21% - down from nearly 7% in 2009, and probably less than most potential buyers imagine when embarking on the process of acquiring a French property. Apocryphal stories abound of 'bargains' picked up for half their original asking price but the hard evidence appears to confirm the reality that there is relatively little room for manoeuvre even in a sluggish property market.

The highest average discount of 6.63% is attributed to Marseilles but still down from 8.16% in 2009, and the lowest at 2.56% in Paris (4.36% in 2009).

The average price per square metre is now 2,515 euros - the highest since before the recent property crisis. During 2010 prices actually rose by an average of 8.69% across France, and double that amount (at 18.46%) in Paris.

Despite these figures, buyers it seems will find it difficult to secure a reduction of more than 5% off the property's asking price.

Source: Mireille Weinberg, Les Echos.fr 04 January 2011.