French house prices to remain stable

Even if most real estate professionals are likely to raise the probability of a sharp decline in housing prices in 2013, all observers do not share that view yet. In a recent study on the French property market, the research firm Xerfi excluded all published prices, preferring to rely on the relative stability of actual sale prices.

While the scenario of a significant drop in property prices is favored by a large number of professionals (Crédit Foncier predicting for 2013 and a decline of around -5 to -10%), some voices however carry a different tune. This is particularly the case for Xerfi, the economic research firm who does not hesitate to take against the general opinion in saying that "despite government measures to curb the recent rises, house prices in France will remain at a high level in the new build market as in the market for existing properties. '

In the study released recently Xerfi assert relative price stability for at least the next two years. These should register a marginal decline of 1.1% in 2013 and -0.4% in 2014. According to the firm the weakness in new developments should greatly influence the price as this level of new property building will not address the structural deficit of housing and help to limit price declines. '

If these figures are national averages, house prices should nevertheless adopt relatively disparate developments by region. While Paris and Ile-de-France, combining economic attractiveness and notable lack of new housing should see their prices remain at a high level, regions such as Alsace and the Rhône-Alpes will see a slight decrease in price owing to the larger numbers of new developments in those areas. John Busby of French Private Finance agrees with this, though does not think prices in the main ski stations will suffer. "The popular areas of France should remain stable due to the inwward investment by overseas buyers. French mortgage rates are at their lowest ever level which should maintain the flow of investment into these areas as buyers take advantange of the excellent long term French mortgage options available at 80% of the purchase price.

Overall house prices are likely to persist at this level for the medium term if sales volumes continue their downward trend. According Xerfi, we will have to wait until 2015 to see the beginnings of a recovery, both in regard to the price that the number of transactions.

Read More

Where next for real estate in Paris?

The Depardieu Case has generated considerable commentary.

It is important to note that, beyond the “shallow” controversy triggered by inappropriate statements from some members of the Government, it is a real key issue. Sales of luxury properties in Paris have been dropping sharply since Francois Hollande’s election.

Preliminary reports for 2012 revealed a decrease of almost 50% in transactions where the price is higher than 2 million Euros and, a decline of less than 30% for sales between 1 and 2 million Euros. According to the agency Emile Garcin, the second semester of 2012 has already seen a spiralling drop of almost 50%.

What is the link with the Depardieu case? The flight to escape tax.

Charles-Marie Jottras, Head of Feau network (a large French real estate agent), recently confided to one of his colleagues:”Over the last seven months, sale mandates of real estate with a value higher than 1 million Euros have increased from 700 to 1200. I’ve never seen that in my 30-year career.” It has been confirmed by the Barnes agency that more than 30% of real estate properties, with an estimated price higher than 3 million Euros, offered for sale during the past few months, are linked to the tax exile of their owners.

As a consequence of this massive exodus, the number of real estate properties offered for sale on market has increased in a short time, whereas demand has correspondingly reduced. While our wealthiest citizens are dreaming about leaving France to set up abroad, foreign people are shown to be more and more hesitant to invest in French real estate. The client base of foreign investors accounts of 60% of real estate market for properties worth more than 3 million Euros. Thought it must be noted that these investors also invest in other capitals like New York or London. Real estate transactions for property worth more than 2 million Euros in Paris decreased by 38% between June and August 2012.

Wealthy Parisian owners are selling on a massive scale and foreign investors are leaving. This creates an increase of luxury real estate properties for sale in Paris and a growth of reserve stocks of almost 50%. According to supply and demand, it would be logical that prices drop in this industry, but it would appear that suppliers haven’t been ready to release the pressure. Nevertheless, some decrease in prices of around 5% has been reported.

Although luxury real estate prices remain below 10% in Paris in comparison to other top cities like London or New York, it would appear that current fiscal policy needs some work to boost investment into France for now in spite of some of the lowest French mortgage rates ever

John Busby of French Private Finance notes, "Fiscal uncertainty is not new for France. The Government of the day always makes changes. Hollande has made changes to please his back benchers with many comentators believing he does not know what he is doing.  The fundamentals for long term investment are there. Soft prices now, excellent long term interest rates with the prospect of inflation over the medium term. No wonder the average price for non-resident transactions has almost doubled".

 

Read More

December 2012: Currency update

Investors' impatience with the lack of progress on a permanent solution to the Euroland debt crisis (if that's what it still is) has begun to take its toll. From its position at the beginning of October the euro has fallen by more than two US cents. The euro has actually strengthened by a quarter of a cent against the pound over the same period but that bald statistic hides a fall of more than three cents for sterling during the first three weeks of October and a three-cent rally since then.

The position of Spain has not really moved on. The general belief that it should apply for a bailout, triggering the European Central Bank support programme for its government bonds, is not shared by Prime Minister Rajoy. He sees no need to hurry because the mere threat of ECB action has already reduced his borrowing costs.

He can also see the damage that additional austerity measures - a likely condition of bailout support - could do to his country. The economy of Greece has shrunk by a quarter since 2009 and another two years of recession lie ahead. EU leaders are trying to keep Greece in the single currency but at a terrible cost to the country. It might also be at a terrible cost to EU governments if an eventual shortage of cash in Greece means it has to default on its obligations to them.

The worries about Greece and Spain (and, most recently, France) have now been joined by concern about the euro area economy. Germany has begun to feel the pinch and has recently reported declines in manufacturing orders and output, retail sales and business sentiment. Purchasing managers' index readings for the manufacturing and services sectors both indicate contraction. Euroland's economy could be in recession until the end of next year.

The latest unhelpful development is a reported spat between the International Monetary Fund and the EU about an easing of the terms of Greece's bailout. No wonder investors are finding it more difficult to be optimistic about the euro than they were a month ago.

Read More

Where can investors find the best French mortgage rates?

With a fixed rate of 2.95% over 20 years, the cities of Lille, Marseille and Toulouse remain the cities where you can find the best mortgage rate. The continuing decrease in the available French mortgage rates lead to an increase in property buyers affordability in 6 cities.

In November, the best mortgage rates available have broadly stabilized and only declined in 3 cities out of 10. In Toulouse, Marseille and Lille, it is now possible to obtain a French mortgage at 2.95% over 20 years – subject to certain conditions of age, income and contribution. Now Aubagne and Marseille have got historically low rates particularly for borrowers under 36 years with a 20% deposit.

The first half of the ranking remains the same since mortgage rates are at their lowest. They can now hardly decrease again. In Bordeaux, the best rate decreased by 0.10%. Lyon, rising from 10th to 7th position, saw its 20-year rate decrease by 25 basis points as did Nice, where the best rate offered decreased by 15 basis points to 3.25%, a rate equivalent to what borrowers can expect in Paris. Montpellier is at the bottom of the ranking by offering rates at 3.34% over 20 years. In November, 70% of banks lowered their French mortgage rates. The average rate on 20-year reached 3.55%. Despite the downgrade of France by Moody's, the state continues to borrow at low rates (2.15%). Borrowers should therefore still be able to do so in the coming months.

The recent months respite has been confirmed... Only three cities (Marseille, Nantes and Lyon) are affected by a slight price increase versus six cities before the summer. Elsewhere, even in Paris (however slightly) prices have decreased. In November, investors see their purchasing power increase. For instance in Toulouse, with €1,000 monthly repayment over 20 years, investors can borrow €181,127 compared to €173,192 in June, and so afford an extra 3 square metre moving from 67.7 m2 in June to 70.9 m2.

Read More

Invest in a Student Residence through French leaseback

Student residences are becoming increasingly popular with investors attracted by good returns with low risks. This is one of the most profitable real estate deals but investors must pay attention to the reliability of the management company and the location.

This market, neglected in the mid-1990s, has rebounded in recent years in the context of a shortage in the housing market. Today, France has approximately 340,000 designated student properties, whereas each academic year sees  more than one million students seeking accommodation in the rental market.

Simplicity and efficiency

Mainly composed of studios, student residences are equipped with amenities designed to make life easier for their young occupants such as breakfast, laundry, meeting room or work space dedicated to sports and recreation, broadband Internet connection and sometimes parking. The advantage is that the end investor does not have to worry about the management of the residence as each property comes with a commercial lease of at least nine years with a management company which then sub-lets to students giving an average yield to the investor of 3.5%-4.5%. The company is also responsible for the maintenance of the building and the payment of rents to the owner. The investor is not responsible for any departure of a tenant, unpaid work to be done… but still gets the same rent every month whether the accommodation is occupied or not.

Of course, to keep on paying the rents on time, the management company must have a good occupancy rate. So if the residence is not well located or poorly maintained, investors eventually will suffer from the consequences. However, this investment does have a few risks due to the short duration of the rental agreements and the low rental amounts. However, most well located student property performs well as parents often pay for their children and the occupancy rates are very high due to the high demand on the market.

An attractive tax and finance system

Several tax advantages exist. First, the 19.6% VAT of the purchase price of the property can be  refunded. French student residences are also eligible for the tax system called Louer Meublé Non Professionel (LMNP) which allows owners to amortize the price of acquisition over 30 years. Each year, it enables to the buyers to deduct 3% of the purchase amount to decrease the amount of the taxable rents. Generally through French Leaseback, a foreign owner does not pay tax on rental income. Non-residents can also find a mortgage in France for up to 85% of the purchase price. French Private Finance offer a range of services and specialise on finance for international investors into France so contact them if you would like to find out more about mortgages in France.

The management company

Be careful of management companies which promise high returns and which mean they charge high rents as it may, sooner or later, have difficulties to fill its residences. They may be unable to provide the promised return and so decide to reduce it without the owner’s approval. Always ask if the management company has the means to pay the rents and make sure that the lease provides a clause that indexes the rent to inflation.

The location is a key factor

The location is the key point for a good rental investment in a student residence. The residence should be located close to universities, transport, and in the best case, be located in a major French student city to ensure the performance of the asset.

The prices of these 15 to 20 square metre studios are high and vary regarding the region. In Paris, prices per square metre fluctuate between €550 and €800, €630 in Nice, €500 in Marseille and only €250 in Troyes. The supply of student accommodation remains too low despite the tax incentives granted by the French government. Only 15% of the requirement for student accommodation is met. This very low rate promises good return for investors who are not likely to see the demand for student property decrease any time soon.

Read More

Mortgage rates keep on decreasing

Mortgage rates keep on decreasing in France and brokers say that it reminds them the situation of October 2010 where rates hit record lows.

Some brokers in France have succeeded in finding the occasional unexpected fixed rate of 2.95% over 20 years for their French clients. Less than 3% for a repayment French mortgage over 20 years is a dream for many applicants. But the dream remains inaccessible to the vast majority of them even in this period particularly favourable. In fact, the lowest rates are only accessible for the best applicants that have a good financial health and are living in France. In fact it is hard to see rates being able to go any lower.

The average rate for a French mortgage over 20 years now stands at 3.80% (a decrease of 0.05% compared to the previous month). The decline appears even slightly more pronounced for mortgages over 15 years with an average rate fell by 0.10% to stand at 3.35%. International buyers can also access these rates for mortgages in France for their French property with a 20 year fixed rate from 3.60%. 

Being able to fix your interest rate under 4% for 20 years holds exceptional value. Once you take away the target inflation rate of 2%, you can see that you are only paying about 1.6% to borrow your money. This is why many people are looking again at the great leaseback deals available in the French Alps this ski season as you can combine an ultra-low fixed rate mortgage with a property that has a guaranteed income stream.

Read More

Bargains galore in the French high end real estate market?

The high end property market in France is facing a dramatic increase in supply as Francois Hollande Government announces a tax rise in the coming months.

"It's nearly a general panic. Some 400 to 500 residences worth more than €1 million have come onto the Paris market”, managers of Daniel Feau, a Parisian estate agency which specialises in luxurious properties said to the French Press Agency.

This huge increase in supply is due to the fact that the new Socialist Government plans to raise the tax rate to 75% on income above €1 million per year and to introduce a marginal tax rate of 62.21% on sales of stock, which has led some the wealthy people say they will leave the country.

Entrepreneurs are mostly concerned as President Francois Hollande plans to reduce the French debt by taxing the companies and the wealthy. They have made a lot of noise, mainly on Facebook via a group called “Les pigeons”, literally The Pigeons that had attracted more than 8,000 followers on Twitter and 60,000 likes on Facebook. This group has forced the Government to back track and now say it will take into consideration the entrepreneurs requests.

In spite of this, some entrepreneurs are still thinking about moving abroad with their family to avoid paying more and more tax. Thanks to new distance working technologies, "it is now possible to work in any corner of the world and to spend one week a month in France", said Thibault de Saint Vincent, president of Barnes France, the principal competitor to Daniel Feau. The preferred destinations of those leaving are London, New York and Geneva, as well as Canada, Israel and Singapore, said Laurent Demeure, head of Coldwell Banker France.

However, we should probably take all this with a pinch of salt as the wealthy French often say they will leave the country when a change in tax occurs but the majority do not do so when they realize all the difficulties implied when moving abroad.

Read More

Increase in taxes for non-residents

The French National Assembly has just confirmed an increase in the capital gains and rental income taxes. Overseas owners will be required to pay the additional taxes for the current year as the law will be back dated. However, there is some good news as these taxes should not affect the majority of non-resident owners. France has many dual taxation treaties. In the case of the UK, the new rental income taxes are lower than those in the UK. Whilst, the new capital gains tax rates in France tapes to zero after 22 years.

The French government expects to receive extra income from the increase in property taxes. Now overseas owners will be subject to the same rate and will have to pay 35.5% of tax on rental income versus 15.5% under the previous regime and 34% of tax on property gains up from 19%. As indicated above, it will be back dated to January 1st. However, European Union residents will receive a deduction from French notaries directly upon house sale if they have owned a property for a certain period of time. The taper relief will be of 5% every year after the first two years of ownership. The new system is more advantageous as it allows owners not to pay Capital gain tax after 22 years only instead of after 30 years with the previous one.

It is also possible to opt for a furnished letting tax system to mitigate the tax you pay on rental incomes and to also receive a total exception of capital gains tax after 5 years if you have more than €23,000 in rental income. These systems called LMNP and LMP are very profitable as owners can benefit from an amortisation system that cancels tax liability on the rental income (See www.frenchprivatefinance.com for more info).

In addition, an exceptional contribution on French wealth tax for 2012 will be payable on January 1st.  Household with total assets over 1.3 million euros will pay the difference between the former wealth tax rate and the new one settled by new President Francois Hollande. New rates have not been established yet. Nevertheless, only net assets are taken into account so it means that the current amount of your French mortgage is deducted from your gross assets.

As there is often a way to mitigate the tax you pay on your property investment, non-resident owners should use tax advisor services to optimize their annual taxes.

Read More

French government to rescue Credit Immobilier de France

The French government has finally nationalised the Credit Immobilier de France which has been weakened by a liquidity crisis and a failure in the search for a buyer since May.  “To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee” said Finance Minister Pierre Moscovici on September 1st. The country would provide a 20 billion euro guarantee without spending taxpayer money.

However, the bailout is still subject to the approval of the European Commission. Prime Minister Jean-Marc Ayrault has reassured French citizens saying in a radio interview that, “The state has taken its responsibilities to provide a guarantee, but as this bank has its own capital, the money of taxpayers won’t be called upon”. In order to respect one of the state conditions, CIF will not be authorised to make new loans anymore.

At the moment economic analysts think that the government will drastically slow down the mortgage lender’s activities instead of searching for a buyer. On Tuesday, Moody’s cut CIF’s credit rating citing that it would be placed into a run-off scenario rather than being rescued. The ranking agency said a “run-off scenario is probably not the preferred solution of the French government due to the importance of the bank’s lending activities to the French housing market, especially in assisting less privileged households”.

Last week, Claude Sadoun, CIF’s Chief Executive Officer has resigned before being replaced by Bernard Sevez, head of a French social housing group. Meanwhile, French government expects Claude Sadoun to renounce to his severance payments of 1.5 million euro.

The government’s intervention comes just after the rescue of the Franco-Belgian Dexia bank in October 2011. This is the latest problem that President Francois Hollande has had to face after the recent mass layoffs operated by Peugeot and Carrefour supermarkets.

These changes also affect Banque Patrimoine et Immobilier who are a key player in the non-resident mortgage market. Effectively, BPI will have to cease new lending which means no new offers will be issued. All existing offers will be honoured but any clients who are in the process of applying had better look elsewhere (French mortgage best buys). This is certainly a blow for the French mortgage market for overseas borrowers as BPI were a major player in keeping the others competitive. With less competition in the market we are likely to see bank margins remain the stable or perhaps increase. On a positive note we are experience the lowest French mortgage rates since the second World War.

Read More