Thursday, August 25, 2011

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

Thursday, August 11, 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.

Sunday, August 7, 2011

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.

Monday, August 1, 2011

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.