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Investment in property has been recognized as the unfailing means of acquiring wealth. The phrase ‘safe as a house’ is clichéd. Yet, it is the only truth in the context of return on investment scenario. Return on investment in property is a slow process. However, it is an investment that never fails. History also testifies to the fact that investment in property is a minimal risk investment. The return from the property, services the investment. The net worth grows over time and generates income for further investments in property.
Like any other investment, Property investment is a skill which has to be learned. The investor must be aware that there are risks attached to any kind of investment. He must also consciously acknowledge the fact that during the process of investment the risks attached seem to be magnified. He must also accept that, the right choice of property, combined with considered management are absolute essentials in any property investment. Property investment is a serious business that requires the right kind of commitment.
Before actually launching into the purchase of a property, the investor must be clear as to the purpose of investment. If investment may be for:
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Personal use
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To buy and Let
The purpose will determine the type and location of the property. In the former instance property may have to be located close to the place of work or near an educational institution. The type of property may not per se be of importance. Its location may be important. In the latter case all aspects of the property assumes importance. It is a property purchased as an investment and the investor expects a return on property investment.
Investment Property should be selected keeping in mind the following environmental factors:
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High employment area
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Attractive buildings and surroundings
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Public Transport facilities
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High capital growth
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Developing areas
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Low maintenance costs
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High demand by letting agents
The Return on Investment (ROI) expected will include factors such as
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Appreciation of the asset
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Regularity of rental income
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Long term stable tenants
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Care by property managers.
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Tax benefits
Investing in foreign countries requires an understanding of the laws and systems as it impacts on investment by foreigners. It also requires an understanding of the socio-economic fabric of the country as it will have a bearing on the value of the property. Therefore, investing in property in a foreign land requires the investor to stay in the country for some time or a study of the socio-economic-demographic and political setup of the country in so far as it impacts on foreign investment in property.
Investing in Property in the South of France
The south of France stretches from Menton on the Italian border to the Mediterranean Sea on one side and from the Rhone delta to the Spanish border on the other. The Pyrenees borders the land to the west and the Atlantic Ocean fans the shores on the east.
Real Estate market in France, historically, appreciates at the rate of 3% to 5%. However, in some areas property values may rise to the extent of 15% per annum depending on investment dynamics and population and communication expansion. A number of rural properties that are crying for renovation are available throughout the south of France. Real Estate agents generally, give the buyer all the required information upon request. It is important to check on the availability of electricity and to examine the extent of repairs required to be done before accepting the price quoted.
The area is which the property is located makes a considerable difference to the laws that govern the purchase and sale of property in the South of France.
Most foreign buyers of French properties in the South of France are from UK, but a number of buyers from other countries are increasingly flocking to France. Most of these homes are being offered to the short term rental market after purchase.
Foreign buyers and restrictions
There are no restrictions on foreigners buying property in the South of France. The enactment decree No. 2003-196 of March 7, 2003 and the Administrative order of the same date, govern foreign investment in France. Foreign investment regulations are governed by terms such as “french territory” “residents” “non-residents” and have not been modified by the Decree.. The decree requires foreign investors to notify the French Ministry of Economy of both direct and indirect investments by foreign persons or companies in properties. Foreign companies are expected to notify the Ministry of Economy when:
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When they establish a company in France
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They acquire in whole or a part of a French business
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They acquire any capital in a French company.
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Or a foreign individual acquires 33.33% of the holdings of a French company.
This restriction has been brought into effect in response to the European Union case law which struck down prior French investment authorization requirements as overly vague. The new regulations now provide precision concerning the special cases where prior investment authorization is required. Violations of French investment regulations are handled by the statute as customs violations and carry heavy civil and criminal sanctions including imprisonment and confiscation of assets.
Foreign investment in real estate is exempt from notification requirements if it is a direct investment by the foreign entity in French Real Estate Company, unless the company is doing the business of constructing real estate for sale or rental. Foreign investment in agricultural land is also exempt from notification authorization.
Procedure:
The administrative notification or request for authorization must be filed with the Ministry of the Economy (Treasury Division), 139, rue de Bercy 75572 Paris, Cedex 12. The application must contain the name and address of the investor if he is an individual or the company identification of existing shareholders if it is a company or the list of important known shareholders having more than 5% shares and the list of all the Board members with their names and addresses. In the case of an investment fund the identification of the managers must be provided. The request must also contain the location of the registered office, the K-bis or SIREN number and a description of the activities of the company; the financial statements for the preceding year.
Foreign investors must also make statistical declarations to the Bank of France within 20 business days if transfer of funds involves more than 15 million pounds.
The process of buying property in the South of France
The services of a solicitor need to be engaged while processing the purchase of real estate in the South of France. The solicitor will draw up a legally binding document known as the “compromis de vente”, which both parties will be required to sign. 10% of the contract value is to be paid to the seller at the time of signing the contract. The final contract(known as “äcte de vente”) is normally signed at the Notary’s office and the deeds will pass from the seller to the buyer and the land registry will be updated. The balance purchase price will be paid to the Notary who will then pay the vendor. The buyer will have to provide the Notary with a copy of his birth certificate translated into French and a copy of a Marriage certificate (if any) also translated into French. The Solicitor is normally paid around 10-15% of the market value of the property as his fees. The Notary fee is around 3% of the cost of the property and a transfer tax of 7.5% is chargeable. The Real Estate Agent also will demand a fee. France is the safest place to invest in property as every payment is recorded and monitored. No money is directly paid to the sellers account till all formalities are complete. The money is held in a ecru account in the buyers name.
Rental Properties in France
The French Government’s leaseback scheme has made the French rental market very attractive. The tax relief built into the scheme also makes the process of acquiring properties for letting out very attractive. The prices of property are also relatively low compared to North European countries and the climate is good and the quality of life is high. The health, culture, history, tradition and safety are the best of the breed. Moreover, a whole industry seems to have sprung up to cater to the growing world demand for real estate in France.
In the South of France there are not many properties that satisfy the demand for rented properties. A person wishing to rent out his property can take one of the two options available. He can go in for guaranteed rentals for a term of 3,6, or 9 years and such rentals are underwritten in French law by an insurance company. Private rentals can also be arranged with rental agencies or through advertisements in newspapers. The returns will be better on this as there are no middle men.
Property tax in France
Property taxes are levied on property in addition to a residential tax. Both these taxes are calculated on the average property rental value in the area. In the South of France any French Corporation that owns real estate will pay to France an annual tax equal to 3% of the market value of the property. The stipulated conditions are that the corporation should make an annual declaration; there should be a bilateral treaty between the Governments of the respective countries; the corporation must have all its interest in the ownership of French real estate property; the corporation must also disclose annually all the details of the persons who have control over the foreign company.
Tontine tax
In the South of France, Tontine tax is to be paid on the death of a real estate owner, where the deceased individual was in partnership with another (by marriage or otherwise). The tontine clause must have been included in the title property and must be performed at the time of the death of one partner. Usually the tontine clause specifies that the property should be transferred to the surviving partner. If the partner is not a legal heir to the property problems can surface as the law does not permit the disinheritance of legal heirs. Therefore, if the partner is not a legal heir only a small portion of the property can be transferred to him. The clause has no bearing on amount of estate taxes to be paid by the heirs to the properties of the deceased. The partner will have to clear the situation and assume responsibility for payment of taxes which can be up to 60% for persons who are not linked by blood or marriage to the deceased. He will also have to indemnify the legal heirs for the portion of estate that they are being deprived off due to the Tontine clause.
Capital Gains tax
The Capital gains tax on sale of old houses owned for less than two years is about 33% with a sliding reduction on profit percentages over a period of 20 years.
Tax on Rental Income
Rental income received in France is taxable as per French tax laws. The income can be set off against mortgage interest and depreciation on furniture and fittings.
Mortgages:
Investors are allowed to borrow up to 80% of the property value from French Banks or international mortgage brokers. The payment period can vary from 15-25 years. |
