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French Real Estate Sales on the Rise Again

01 December 2010 - - news

From charming farmhouses amid lavender fields under the Provencal sun and affordable apartments as well as pricey waterfront villas in Cote d’Azur to ski chalets in the Rhone-Alpes, France offers an interesting diversity of landscapes and accommodation. Be it a retirement or second residence, vacation home or a buy-to-let property, a house in France has long been a dream for many international buyers.

It’s easy to understand why. One of Europe’s largest and most beautiful countries, France’s attractions are many and unique – a variety of gorgeous landscapes, eclectic accommodation including chateaus, farmhouses, barns, cottages, chalets, villas as well as modern and classic apartments, a relaxed lifestyle, warmer weather, one of the world’s best healthcare systems, good education, fast trains and of course, excellent cheeses and wine.

Though the recession has taken the shine off real estate investment in many countries, the French market has proved fairly resilient, with some sections rebounding now.
For those seeking alternatives to distressed markets in the US, UK, Spain and elsewhere, French real estate is a safer option. Fixed-rate mortgages, which account for 80% of housing loans, and prudent lending norms have insulated the market from sharp price swings either way. Spared the financial stress of increasing mortgage payments, French borrowers are far less likely to default. Generally, domestic investors now consider French real estate a safer investment option than the stock market.
The CAC 40 fell from 7000 points in 2000 to 3600 in 2010, a fall of almost 50% whereas the real estate index posted over 200% gains during the same period.

FNAIM (National Association of Real Estate Agents in France) is expecting total sales in 2010 to exceed 700,000 transactions, up from less than 600,000 in 2009.
The recent spurt in sales is being attributed to very low interest rates – an average of 3.3%, reported to be the lowest in 50 years - and the impending withdrawal of mortgage tax and investment property tax relief as well as scheduled increases in capital gains tax, all due in 2011.

Over the last decade, at least 300,000 new homes have come up every year in France, another factor that keeps prices at fairly realistic levels. The government has been encouraging the construction of new homes by offering generous subsidies. Currently around 40% of new homes receive some subsidy.

Economically, France is stronger than most countries in the E.U. and was one of the first to emerge from the recent recession but structural flaws remain, making the country less competitive in an increasingly global market. As the recent strikes over pension reforms showed, French labour unions wield considerable clout, leading to an inflexible labour market. Also, generous unemployment benefits have resulted in relatively high unemployment rates. A rising social security bill is increasing government borrowing and budget deficit as a percentage of GDP has risen significantly since 2008.

Relative economic uncertainty is driving many locals to migrate to towns and cities from the countryside, resulting in disparities between urban and rural markets. Globalization, however, has led to an increase in the number of international buyers who have the money to invest in luxury, vacation or rental properties in France. Additionally, faced with the prospect of dwindling real estate values at home, buyers from the UK and Northern Europe are showing interest in some parts of rural France and appear keen to benefit from the relatively low prices.

A recent FNAIM report for Q3 2010 points to a disparate market. While price increases were the highest in Paris and to a lower extent in the Ile de France region, Aquitaine, Cote d’Azur, Brittany and Provence, prices fell in Lorraine, Normandy and Picardy. Elsewhere, prices remained more or less stable. Prices tend to be higher in the main cities and towns because demand exceeds supply. In general, Q3 has seen more sales but house prices have risen only in some regions.

Paris, the wider Ile de France region and PACA (Provence and Cote d’Azur) are still popular with foreign buyers. Demand for good properties continues to be encouraging irrespective of interest rates and fiscal incentives. Reportedly, prices of apartments in Paris touched historic highs in Q2 2010, with the average price going up to 6680 euros per square meter.

Economic sluggishness notwithstanding, France continues to be one of the most popular tourist destinations in the world. Buying to let in popular tourist destinations including the French Alps and Cote d’Azur has proved to be quite profitable for many foreigners who also have the assurance of French real estate being a fairly safe investment over the long term.

All things considered, a new property or an old one of good quality in the right location is likely to be a stable investment from a long term perspective. And this could be a good time to invest.

Facts about real estate transactions in France:
In France, foreigners are free to buy property without any restrictions. Though most property is freehold, 99 year leases are also available. The use of French notary is a must for all French property transactions.

• Buyer and seller sign preliminary agreement once price and property particulars are agreed upon.
• Normally, buyer deposits 5% to 10% of the price with the notaire who keeps it in an account for the buyer. The deposit serves as a guarantee until the sale is concluded or cancelled.
• A 7-day cooling-off period follows, during which the buyer can reconsider his decision.
• Structural surveys, land registry, local authority and planning permission searches are conducted after the preliminary agreement is signed.
• On completion of all formalities, the buyer and seller sign the Acte Authentique de Vente at the Notaire’s office.
• Buyer pays sale price net of deposit plus legal fees and taxes to the notaire.
• After documentation is complete and the house is insured, keys are handed over to the buyer.

Buyer pays 8.67% to 13.37% of property price in transaction costs.
Seller pays 2.39% to 5.98% of property price in transaction costs.

On an average, it takes around 193 days to conclude all the 10 procedures required to register a property in France.

Do you own your own holiday home?
If so we can generally reclaim 30% of the purchase price back from the taxman for you!
On a £300K property that means that you can offset £90k.
Claim Tax back Now! Act now to get your claim in to HMRC by the tax deadline of January 2011



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