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