Monday, November 21, 2011

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. 19 november 2011