Country Review: France
Posted by Jude Buttle on Monday, September 01, 2008
Renowned for its great gastronomy, wonderful wines and rousing revolutions, France is one of the most preferred property investment places in the world. We take a look at the country and assess why it's still so fashionable with investors.
Photo by Francois Schnell
The Allure
France has one of the most visited capital cities in the world: Paris. The city offers art and culture, exceptional transport links and a maelstrom of nightlife, with a collection of cafes, clubs and bars. Oh, and there's the Eiffel Tower.
There are beach and coastal towns along the Mediterranean, such as St Tropez, Marseille and Nice, which flaunt their natural beauty while mixing relaxing ambience with glitz and glamour.
There's also a vast amount of countryside, idyllic rural settings, appealing to many retirees, in areas such as Provence, Brittany and Normandy.
For the ski worshipers, there are numerous resorts set in the Alps and Pyrenees, offering magnificent mountainous backdrops.
France is still one of the main destinations for UK tourists, with its close proximity making it an obvious weekend away destination. With several means of transportation, low-cost airlines frequently flying to many areas of the country and the Euro tunnel taking passengers straight into Paris and its connecting routes, France seems right on your doorstep.
Buying Power
For years now, France has been one of the countries with the most vibrant housing markets in the EU. Substantial house price increases have been going on since 1998 (only Ireland has experienced a longer period of growth).
One factor may be the increase of purchases by non-residents, with a particular presence of foreign buyers in the South East region of the country.
The British continue to remain the largest buyers of French property, accounting for around 60% of all foreign purchasers. The Russians are now also buying in France, although tending to target more extravagant properties in the South East.
Property prices in France tend to become more expensive the more urbanised the location, although prices can vary. Apartment prices in Paris (the fourth most expensive city in the world) average €10,485 per m2, whereas small rural properties go for about half that price.
So, it's no wonder that France has become such a magnet for international property investors, with not just Brits but investors from Italy, Spain and Scandinavia, all buying into a small piece of Gallic charm.
Market Appeal
The property rental market in France is vibrant and investors have a variety of options when it comes to making rental revenue and seeking out a bargain deal.
Leaseback (Residence de Tourisme) - This is an increasingly familiar way of buying French property for overseas buyers. In this scheme you buy the freehold but then lease it back to a company for a period of time, usually nine years, who then let it out on your behalf. This system can give guaranteed returns, normally between 3 and 6%, and the buyer also gets refunded the VAT on the purchase cost.
Buy to let - Long term leases in France are for three, six or nine year periods. Short holiday letting can be very rewarding, but obviously takes more effort to manage. This will be reflected in higher rental agency fees and there is more of a risk of void or empty periods.
Where best to invest? - For tourist rental the Cote d'Azur and Alps are still extremely popular. Paris has a very strong rental market, with yields around the 5 - 6% mark for long-term rental and potentially higher for short-term ones.
Occupied property sold at a reduced price - Frequently in France, institutional investors put entire sections of their property portfolios onto the market. Many of these properties are sold with tenants in place and allow investors to benefit from a price reduction relative to the length of the remaining lease.
Simple System
Obtaining a French property is relatively simple, especially for EU citizens. A notary is required in order to draw up and then witness the signing of the contract, and with the notary in France being extremely revered, they will also be suitable to undertake the full legal service.
A deposit will be paid of around 10% on the day of the signing. Sometimes the deposit is less for properties under five years old.
French lenders are notoriously cautious and will put your finances under the microscope. But there has been a slight change in attitude, due partly to the demand for more flexible lending by British buyers, with interest-only mortgages recently made available.
Mortgage terms have lengthened over the past few years, suggesting that buyers are having some difficulty meeting interest and repayment obligations. The average mortgage term now stands at 20.5 years, according to FNAIM (the French Association of Estate Agents).
The European Central Bank has continuously raised base rates but the French housing market is somewhat less affected than other countries' by such interest-rate rises, as only 20% of its housing loans are lent at variable rates.
Conclusion
France is still a firm favourite as a property hotspot, which is no surprise as the country has so much to offer. It's easily accessible, with first-class transport links and travel locations. It has an amazing countryside, superb ski resorts, breathtaking coastline, and a legendary capital city. All of which makes France... le magnifique.
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