Monday, May 1, 2017

Buying a French apartment? Beware of management costs!

Buying an apartment in France, as opposed to a freehold house, may seem like an attractive low-cost alternative - until you come to add up the associated 'management fees'. Many seemingly cheap apartments can turn out to be an expensive investment.

In my home town I have been looking at lost-cost apartments, many of them located in the best part of town, facing south onto a park (the old bit of open urban space there is) and many priced at under 50,000 euros for a small studio under 25 square metres, and attractive as a 'pied à terre' or as an income earning buy-to-let investment.

Part of their attraction can include a balcony or terrace, high levels of security, sometimes a resident concierge, central heating and hot water, car parking, and a lift (many are eight storeys or more high). Occcasionaly extra amenities such as a swimming pool, gardens or tennis courts form part of the package.

All these attractive extras however come at a price. Buying an apartment in a share building involveds purchasing the freehold in your individual apartment and in addition a number of shares in the building itself - sometimes refered to as tantièmes - the quantity calculated according to the size of your apartment. You effectively own part of the freehold and details will be written into your contract of purchase - the equivalent of title deeds to your property.

Buildings may be managed by a committee of co-owners - you become one on purchase of your apartment and become entitled to vote at the annual general meeting or indeed become a member of the co-owners' committee. Within smaller buildings, day to day management as well as major decisions such as external painting or renewal of the lift, may be handled by the (voluntary) 'syndic' (committee of co-owners). This can work well for buildings comprise, say, up to ten or twelve apartments. (I currently live in a building with just four co-owners, the largest owning two whole floors, and we meet and discuss informally any needed expernditure. There are no fixed annual costs, other than the obligatory building insurance, which we all share in proportion to our share, in addition to the insurance of our invidivual apartments).

Above this figure it is more usual to employ a firm of external building managers, some of whom are part of a larger group of insurance companies, banks or property investors. And they charge for their services. Many of these organisations have come in for criticism in recent years - for overcharging, poor management and in some cases downright fraud. They succeed in getting away with it because apartment owners are not interested in how the building is run and will pay the monthly bill of charges to the managers without raising too many questions. Until active individuals or members of an alert co-owners committee start to investigate.

The first thing you will know about the level of 'building charges' will be in the state agents' details of the apartment you are interested in buying (in addition of course to local property taxes paid to the commune). And it is at this point you will realise that the 'cheap' apartment you are being shown round may be subject to management charges from 500 to over 1000 euros per year - and possibly additional costs planned in the near future, to pay for external painting or replacement of the lift.

As a general rule the larger the building the higher the cost to maintain and pay for unforeseen contingencies, and as a result the higher the charges demanded - once again in proportion to the size of your apartment. As a result, as part of your French property hunting, if you are looking at apartments you need to be fully aware of the likelihood of additional management charges, which over the years are most likely to rise, while the value of your apartment may fall.

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