French property - getting the market moving again

It is that time of year, after the Christmas and near lull, when property commentators start to publish their predictions for the French property market in the next twelve months.

Curiously, FNAIM - the French estate agents national body - announced recenlyt that all that was needed is a drop in property prices of up to 5 per cent! I consider that frankly laughable, as it already possible in today's market to negotiate a 5 or even 10 per cent price reduction during virtually any transaction. And as always, there are huge differences between sectors of the market, with some properties selling well and others not.

Among properties that are selling well are new-builds, constructed to the latest BBC norms for energy saving, even though their cost can be 10 or fifteen percent more than traditional dwellings. Among the reasons cited for their success are buyers' concerns about every costs, which continue to rise. Among recent examples shown on French TV were detached two and three bedromm homes which came with a guarantee that heating, lighting and hot water would come to no more than 15 (fifteen!) euros per month, using the latest heat exchangers.

The houses shown were in Normandy not the traditional sunny south. However in my area of the French mediterranean coast, holidays home sales are in total free fall, particularly those constructed in the 1960s and 70s and which have reached the stage where they need complete renovation (insulation, electrics, plumbing etc). Second home sales are also adversely affected by the French government's stop-go announcements about rates of taxation on second homes, which have still to be clarified. Nonetheless, in my local town, two drand new blocks of hooiday apartments are in course of contruction, one of them sold out before the foundations were laid.

Another type of property that is increasingly required are those offering three or more bedrooms, including new-builds, the reasons given being the rise in divorce and separations. which is turn lead to 'recompsed' families with several children. Adolescents need their own space and the traditional one or two bedroom apartment or house is no longer adequate. In my local town again, several estates of three and four bedroom houses have been built - priced from 400 000 euros average - and all are occupied. Conspicuous signs of prosperity include swimming pools and two or more cars parked outside.

So the picture is far from being uniform and depends very much on location and current requirements. Languedoc-Roussillon where I live has the highest rate of unemployment in France but is also France's fastest growing region.

Buying a French property 'en viager'

Buying a French property 'en viager' is a legal mechanism whereby a buyer can acquire a property paid by a deposit and instalments, over the life of the owner who may or may not choose to remain in the property until death.

The initial deposit - known as the 'bouquet' ' represents part of the purchase price is paid over on signature of the purchase contract, while monthly instalments (known as the 'rente') are calculated according to the market value of the property and the assessed life expectancy of the owner(s) - who are generally of advanced age. The mechanism enables the owners to receive a cash sum plus the month 'rente' while remaining in their property until death.

From the point of view of the buyer, he/she takes a risk in relation to the owner's life expectancy, and should the owner outlive the buyer, the latter's family or descendants inherit the burden of paying the monthly 'rente' until the eventual death of the owner(s).

In a famous case in France, the country's oldest resident sold her home 'en viager' to her lawyer, who died in his eighties, while she lived on until the age of 126! The lawyer's family continued paying the old lady until her death, well over the value of the property.

Buy to let in France

The French newspaper Libération has published an interesting profile of typical French private landlords, who between them house one fifth of the French population - 14.4 million inhabitants,  or 22.7% of all households.

There are nearly 3 million private landlords, of which 30% own a single property they rent-out, and 25% have two. Larger scale owners are divided into 29% owning between three and five properties, 10.5% between five and ten, and 5.5% own more than ten house or apartments.

Of the properties themselves, 63% were purchased specifically to rent-out, 18% were their owners' former principal or private residence, and 14% were inherited. Some 80% of owners bought the property using a mortgage, with interest deductible from income.

Finally, the 'ideal tenant' is seen as someone aged between 16 and 35, with the rent guaranteed by parents. Older tenants (50+) are not seen as ideal 'as they are likely to be/become unemployed, and go into retirement with markedly reduced income'.

Source:www.liberation.fr 04 January 2013

French Property News, January 2013

In the January issue of French Property News I offer a few tips on how to sell your French property in what is currently a slow market - up to 20% fewer sales than in 2011. My main advice is not to be panicked into reducing the asking price, as all the evidence shows that this does not guarantee a sale. Much depends on the type of property and its location, with the sale and purchase of second homes (which represent 70% of the housing stock in ly locality) particularly difficult. As a discretionary purchase, buying a second home is generally not what people do in times of crisis and the general uncertainty about the new fiscal and social policies of the French socialist government.

Good marketing tactics include choosing the right type of agent - if your property is likely to appeal to British buyers, then use an agency that is exoperienced in this market. Sales details should be written in English, with good photographs of the property and its location. You can also market the property yourself using the many websites addressed to international buyers.

The good news is that in line with the rest of Europe, France has an aging population, with large numbers (30%) coming up to retirement in the next few years - those born in the 1950s onwards when France was at its most prosperous and who enjoyed 30 years of job security during the post-war reconstruction boom.. Many are already home owners and have the necessary ressources to move south in their retirement. They could be just what is needed to revive a flagging property market.

Expulsions, re-possessions, forced takeovers....

While most of Europe is in crisis, the property market is suffering from a number of problems, some of them preculiar to France.

Currently the new socialist government, and in particular its extreme left wing housing minister Cécile Duflot, are making the usual noises about France's 'housing crisis' - in a country where 10% (3 million properties) of the housing stock comprises second homes, and at any one time up to two million properties are vacant (between tenants, awaiting sale, awaiting planning permissions etc). In addition, there an inumerable redundant properties on the market - including some 600 former convents and other buildings owned by the Catholic church, some on offer for a token 1 euro - belonging to the government (former law courts, libraries, regional offices), public organisations (former railwway stations, warehouses owned by EDF), the army (former barracks), banks and insurance companies etc.

Many of these buildings have reached the end of their useful life and require considerabl investmnt to convert them into acceptable dwellings, conforming to current norms for safety and comfort. Many also are in locations where people do not want to live (typically army barracks or former Church properties, industrial buildings), for lack of work opportunities and public transport and other facilities.

Surprising therefore that the housing minister has announced that the government is preparing to take over a number of redundant buildings belonging to 'personnes morales' (institutional as opposed to private owners), reportedly 'within a matter of days' in an effort to house the homeless. Certain key cities are to be targetted and also the affluent Côte d'Azur! Mme Duflot insists that everything will be done legally but given the cost of, say, converting a former office block into housing, questions must arise as to who will pay and how long the process will take.

More sensiblse for the French government to free up the existing traditional housing market, which is currently stagnating, with 20% fewer sales recorded in 2012 compared with 2011. Potential buyers are holding back, due to concerns about their job security and the lack of available credit - interest rates are low but conditions are more stringent, including the need for a substantial deposit. Owners who wish to sell, particularly in the case of second homes, are confused about possible favourable or unfavourable tax changes hinted at by the government, while prices remain generally stable as potential vendors are reluctant to reduce their asking price, even if a buyer can be found.

Paris - short-term rentals under threat

Owners of furnished apartments that are let out short-term to visitors and tourists are once again facing threats of prosecution by the socialist Mairie de Paris.

A recent article in the LeMonde tells the story of one such owner who, as a frequent user of furnished rental apartments on his visits to the capital, decided to invest an eye-watering 350 000 euros in a two-room apartment in the fashionable Marais district, paid for by a mortgate of 2 500 euros per month over 20 years.

Between the owner's visits the apartment was let furnished and rapidly produced an income of around 1 700 euros per week, less agency fees and charges for cleaning and changeover. All was going well until a fellow resident in the block where the apartment was located issued a complaint about noise and continual disruption caused by the comings and goings of short-term tenants, and threatened to report the situation to the Mairie.

The Paris Mairie has the unenviable task of trying to cope with the capital's perennial housing shortage and therefore discourages - and even forbids - such short term rentals, arguing that they deprive the resident population of affordable housing. Hoteliers concerned about their own livelihood have added their voice but are challenged by those anxious to encouarge tourism and offer an attractive form of accomodation that is popular with visitors to Paris - and incidentally many other European cities. Over 100 estate agencies are reported to be engaged in the short term rental business in Central Paris. There have so far been only 15 legal cases brought by the Mairie against owners.

Wherever apartments are let, particularly short term, conflicts can arise between resident owners and those who are virtually absentee landlords. This occurs in holiday areas, where second homes are left empty for 10 months of the year but can account for 70% of the local housing stock. Nationally, 10% (or 3 million) of French properties are classified as second homes, out of a total 30 million properties. Again the rental market is huge and encouraged by communes living off seasonal tourism. An active and vigilant owners syndic (management team) offers the most effective means of resolving any conflicts that may arise.

Potential buyers of property in resort areas should ideally inform themselves of current legilsation on short-term letting, local bye-laws and the policy of the building's managers.

Why properties remain empty?

Despite France's housing crisis, an estimated 200 000 apartments and houses remain unoccupied, sometimes for several years.

A recent article in the French newspaper 'Libération'* gave some clues. Aside from (private) landlords who have had bad experiences from tenants who did not pay the rent or left the property in a dilapidated state, many properties remain empty for long periods awaiting planning decisions. These can involve not only the local commune - such as a decision by the Mairie - but th consent of all the residents if the property is owned as part of a condominium (in French = 'copropriété'). Decisions of the owners can overule those of the local commune even when outline or full planning permission has been given - for example to change or extend an existing property. Many co-owners refuse to give their approval, in order to avoid the inconvenience of several months of building works, often prefering to 'leave things as they are'.

Where unused or surplus buildings are publicly owned or are the property of large corporations, it may take months or years to reach a decision about what to do with them. And even when a change of use is agreed, further time is need to secure the necessary planning permissions, consult with architects and put works out to tender, before any construction can begin.

In terms of revenues from renting, an occupied property is generally worth 10 or 20 per cent less on the market, so owners tend to leave them empty or un-let pending a sale. Buildings let as offices command higher rentals than if they are converted into apartments.

French law is highly protective of tenants, even bad payers, and there is a block on expulsions during the winter months. As a result many landlords prefer to keep their properties empty (in anticipation of a sale) or  for short-term furnished letting where the rules are easier, rentals are higher and the turnover of tenants more frequent.

A French TV investigation** into the housing crisis examined the situation in British cities such as Birmingham which has a policy of searching out empty properties and entering into an agreement with landlords, under which the local council agrees to bring the properties up to standard, find a suitable tenant from their waiting list, and recoup its costs for the repair works, usually over a period of five years, after which future rental income reverts to the building owner. Some 80% of owners agree to these arrangements when approached, enabling many otherwise derelict properties to be renovated and occupied to the benefit of tenants and neighbours formerly blighted by an unoccupied building falling into disrepair. Rentals charged are geneally below market levels and there is no shortage of tenants seeking this type of property.

Finally, a couple of interesting statistics - out of France's total 30 million households, around 3 million are second homes, mainly located in country or coastal regions, and occupied for just a few weeks of the year. And around 56% of French own their main or principal home, and prefer to rent, compared with Britain's 70% owner occupies (and 83% in Spain, 78% in Ireland).

* www.liberation.fr 13 November 2012; ** 'En quete des solutions' Channel D8 14 November 2012.

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