By Neil Parkinson

Published in French Property News, January 2007

 

 

The appeal of France, its stability, its propensity nationally to rent rather than buy and its growth in property prices are all factors in your choice to invest in France. Why not consider creating a healthy property portfolio in the dynamic environment of the south of France? The rental market in a number of towns and cities across the region is very buoyant, from studio through three bedroom apartments to houses. National statistics show a strong inward migration to the Languedoc and in Montpellier, the vibrant regional capital, the buy-to-let market is particularly robust. Nîmes and Sète, traditionally cheaper are gaining speed and interest among investors, with gathering appreciation for the historical value of these cities.

 

 

Packaged leaseback schemes, be they of the holiday resort type, or traditional year round rentals, offer the possibility of a very hands-off approach to buy-to-let with brand new property. However these pose constraints in terms of letting durations, locations and styles of building. For those who desire more flexibility over the management of their properties or are seeking an old property in a prime spot in a historic city centre, numerous options exist, but a number of considerations come into play.

 

Buying the right property in the right place and at the right price is the basis for a sound investment. In the case of an apartment, careful consideration of the condition and maintenance of the apartment block are important steps to avoid unforeseen expenses. The price is always a function of a number of factors, but the going rate per square metre in the area will always be a good point for comparison and a basis for negotiation of the price. Houses are better judged against others with similar characteristics. Also, the ease with which a property can be sold after a number of years is not necessarily easy to determine but useful to try to gauge.

 

Should you wish to seek financing from lending organisations, it will always be a good idea to shop around for the best conditions. In France the cost of borrowing money includes interest, the mortgage request fee, the cost of securing the loan (termed ‘hypothèque’) and life insurance. This will be a good basis for comparison between lending organisations but you may also consider those that provide insurance packages covering for the eventuality of unpaid rent. When planning to finance a mortgage with the incoming rent, the appropriate repayment duration should minimise interest yet retain a feasible cash flow. In most cases, French lending organisations will not grant mortgages covering 100% of the purchase to non-residents. To reduce risks, note that some lenders now offer semi-variable, interest rates that fluctuate within a limited range.

 

A good investment, like a good business, is one where there is a healthy cash flow. Hence it is crucial to carry out a continual analysis of income and expenditure. When a mortgage is used to finance the purchase, breakeven should be a reasonable objective, where incoming rent is equal to all outgoings. However if expenditure exceeds income then you need to be prepared to invest additional cash to keep the investment afloat, at least in the beginning while the rent progresses. Before buying, try to make accurate forecasts of your outgoings, including ‘co-ownership fees’ - detailed below, property ownership tax, mortgage payments, agency management fees, any maintenance and should there be any likelihood, tax on rental income. Do not lose sight of the fact that most good property investments are long term, that there may be teething issues, but that the investment will always be worthwhile given the appreciation of property values and rents.

 

Property co-ownership fees (informally termed "frais de Syndic") result from the fact that your property is set within a residence and that day-to-day management is handled by an external organisation. Such tasks include overall maintenance of collectively owned parts of the building, halls, stairwells etc., handling fuel bills, waste disposal, and general upkeep. They issue quarterly bills to owners calling for funds to cover for their expenditure. Presence at the annual meeting – by yourself or a representative - will be necessary in order to ensure that decisions made on expensive tasks don't weigh too heavily on your finances.

 

By mandating a reputable agent to look after the day-to-day property management, you relieve yourself of tasks that are difficult to undertake at a distance. Services provided by the agent include actively seeking and selecting a tenant, completing contracts with tenants, seeking quotes for repairs and maintenance and instructing tradesmen to carry out work, cashing rent cheques and providing tenants with receipts, handling, and where necessary, questioning property co-ownership fees etc. Where brand new property is concerned, the agent can take delivery of the apartment in your absence. Agency fees tend to be 6% to 7% of the rent. It is wise to seek guidance where possible to find the most reputable and appropriate agents. All tasks conducted and fees incurred must be defined in a contract.

 

Additional tasks necessary during the course of the year include completion of legal requirements like tax returns. Summarising succinctly the income and expenditure of your property is a pre-requisite for an accountant to fill out your tax return at low expense. Their guidance should help you carefully consider all aspects pertaining to the property and related expenditure in order to minimise your tax liability and carry any deficit over to future years. Note that tax liability is less when a property is furnished.

 

Needless to say, working in a foreign environment is better, when language is a barrier, if you have someone on the ground with extensive experience of the French market who can serve as your sole point of contact, liaising with notaries, estate agents, accountants, tax authorities and tradesmen.

 

Montpellier, a small provincial town till the 1960s has become a dynamic city and central to the regional economy. Investment in housing, tourism, logistics and the transport infrastructure and new leisure and sales outlet facilities, are just part of the ongoing projects that concern the area presently. A well laid out two bedroom apartment, five minutes from the historic city centre, offering 80m² and a spacious terrace in a brand new residence with swimming pool and garage, bought for approximately 250,000€, will rent for 980€ per month. Studio flats tend to address the student community. While these may see a greater turnover in tenants, they remain an excellent investment in that students whose parents act as guarantors are unlikely to cause deterioration. Two such examples, in a residence set beside the city literature faculty measure 18 and 21m², the latter with balcony and are for sale respectively for 80,000€ and 90,000€. Monthly rents of 400€ and 450€ could be achieved.

 

Within easy walking distance of the heart of Uzès, a town near Nîmes renowned for its beautiful medieval architecture, the ‘Mas Cayrel’ is a new development consisting in 33 apartments of various sizes and formats, each with terrace and 6 villas with gardens. This new build is of true Mediterranean style, adopting building techniques, materials and colours that blend well with local architecture. Prices start at 155,500€ for a one bedroom apartment (47m²) with a large terrace (33m²). For 336,000€ one can acquire a spacious three bedroom duplex apartment. Three bedroom villas with gardens (200m²) are for sale for 296,000€. All dwellings have a secure garage and reduced notary fees are applicable (2.5 to 3%). Besides the option of a year round rental, one could consider renting out in the summer on a weekly basis and retaining it at other times of the year.

 

In the picturesque coastal town of Sète, a one bedroom apartment (36m²) requiring a thorough renovation can be bought for 59,000€. The same apartment in good condition would rent for between 400 and 450€ per month. A 60m² two bedroom apartment bought for 100,000€ and requiring restoration will rent for 650€.