France

Monday, 28 July 2008 12:00 AM

British investment in France has mirrored the domestic market over the past decade. With prices rising early in the new millennium, buyers from the UK were tempted to re-mortgage and make an investment overseas.

However, with prices now in decline, interest in the French market as an outright investment has slowed. Yet France is increasingly seen as a lifestyle destination, with Brits looking to move wholesale to a new life on the continent.

This has ensured a sustained flow of buyers, who are increasingly looking at offbeat areas of France in order to secure the best deals.

So where should buyers begin when looking for a property in France? Here aboutproperty.co.uk takes would-be investors through the basics.

Motive

The first, and often most important, factor when considering a property purchase overseas is to establish a clear and defined reason for buying.

Is the property a holiday home, an investment opportunity, or an emigration destination? All three options are likely to have distinct and disparate requirements, and thus motive represents the key dynamic of any purchase.

Buyers looking for a holiday home will have to consider how often they will need access to a property; the journey to and from the location (both in and out of season); the security of the property when residents are not present; and the amenities in the local area.

Investors will also need to consider the potential for capital gains on a property; the level of risk involved with an acquisition; and potential rental income as well as the time and commitment needed to manage the assets.

Again, those looking to emigrate must assess the lifestyle in their chosen destination; the security of their income; standards of healthcare and education overseas; and the proximity of the locale to friends and family.

Once the requirements of a property have been identified potential buyers can begin to examine possible locations.

Research

In line with the majority of western Europe, property prices in France have been rising dramatically over the past five years, but are now experiencing a period of sharp moderation.

Figures from the estate agency body Federation Nationale des Agents Immobiliers et Mandataires (FNAIM) show prices in France rose by 3.8 per cent in 2007, the lowest increase since 1998.

This compares to recent average price increases of 15.4 per cent in 2004, of 10.4 per cent in 2005 and 7.1 per cent in 2006.
While the FNAIM group factor both apartment and housing data into their overall figure, splitting them apart shows the average price for apartments rose by 3.3 per cent and for houses the increase was 4.3 per cent during 2007.

Furthermore, price corrections have continued in early 2008.

Official statistics from the National Institute for Statistics and Economic Studies (INSEE) find house prices fell 0.8 per cent in the first quarter of this year, after a modest rise of just under half a percent in the previous quarter.

In Paris, prices were still up 1.1 per cent, according to INSEE, in the first three months of this year, but that marked a slowdown from the two per cent increase in the same period last year.

Law

Citizens from the 'older' EU states have the right to live and work in France. These include Austria, Denmark, Belgium, Ireland, Finland, Germany, Greece, Italy, Luxemburg, Netherlands, Portugal, Spain and Sweden.

Inhabitants of Switzerland, Malta and Cyprus also have such rights.

However, those from eastern Europe - Czech Republic, Slovenia, Lithuania, Latvia and Estonia, do not have such rights and will require work permits. This is a situation which may last until mid 2009.

Citizens of Bulgaria and Romania may need work permits until 2010.

All new residents will be expected to place themselves on the population register - L'état civil - registering an official address.

Process

There are a host of costs associated with buying a property in France - as with anywhere in the world.

However, there are certain eccentricities with the French system buyers should be aware of before they move. For example, less than five per cent of property sales in France involve a surveyor - compared to 95 per cent in the UK.

Yet this system is relatively simple.

First in line is the appointment of a notaire. This is usually carried out by the seller. The notaire will produce an acte authentique, informing the mortgage registry (bureau des hypothèques) of your purchase.

With a notaire in place, an offer can be made on a property. A verbal offer is usually sufficient at this stage, allowing for the drawing up preliminary contracts. At this point buyers must consider every aspect of the property.

Is it suitable for individual needs? Is planning permission in place? Are the boundaries clearly defined? Are there any rights of way over the land? Does the sale include outbuildings or other attached land?

If the offer is accepted both parties will enter into a Compromis de vente - with the buyers offering five to ten per cent as a deposit. This is usually stored in a separate, safe account.

There is a seven day cooling off period, but it is important to note it is very difficult to get out of an acquisition once this document is signed.

At this stage the notaire carries out research to ascertain the status of the property. Any potential outstanding mortgages upon it, any access to land from third parties - will all be considered.

Once this has been carried out the acte authentique de vente will be signed by both parties and the notaire. Originals of birth and marriage certificates will be required, along with the payment of all fees. The act must also be signed on French soil.

Tax

French tax law is comparatively complex compared with European neighbours, and professional advice is recommended.

If you reside in France for more than 183 days annually, worldwide income will be taxed in France, with a tax return essential. Britain has a 'double taxation' arrangement with France, thus taxes paid in one country can be offset against those paid in the other.

While taxes may appear initially high, they can be significantly lowered through correct applications of exemptions. As a basic principle, tax is paid as a household - foyer fiscal - as opposed to individually.

The whole system works on a basis that residents pay tax in installments on their income from the previous year, calculated on the basis of income in the year before that. Tax is then paid in ten monthly installments or in three large deposits in February, May and September.

All residents must be registered with the Inspecteur des Impôts, and it is important to request a tax return as one will not be automatically granted. It is also essential to return the data on the correct date, as those who miss the deadline - which changes each year - receive an automatic ten per cent fine.

Those earning under ?5,614 (£4,470) pay no income tax, while the progressive system sees those earning over ?66,679 (£52,820) pay 40 per cent, with a sliding scale for amounts in between.

However, there are vast number of exemptions, for everything to domestic help, child-minding, home improvements and environmentally friendly vehicles.

Capital Gains Tax (Impôt sur les plus-values) will also be paid on the sale of items including: buildings; land; shares; antiques etc. Tax is paid at 16 per cent as income, with a further 11 per cent added for social security.

Principal properties will incur no tax, nor will homes owned for less than five years. A host of exemptions are also obtainable to reduce liabilities.

Inheritance Tax (Droits de succession) in France operates in a different manner to that of the UK. The owner of an estate is not free to leave assets to whom they wish, with precedence given to blood relatives over a spouse or partner.

Thus it is essential to seek advice before investing in a French property.

Currency

All property transactions in France are likely to be carried out in the local currency, euros - which is currently strengthening its position against the pound, which could cause problems.

However, due to the free market it is possible to transfer any amount of cash between France and the UK; but investors taking more than ?8,000 (£6,300) will have to notify the authorities.

Given this flexibility transferring currency between the two locations is not necessarily a complex process.

That said, France has not widely adopted the International Bank Account Number (IBAN) system - which can make electronic transfer of funds a little more complex.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) system operates, however, takes a day or two and will cost from ?25.

It is also possible to transfer funds between the Girobank and the French post office, taking three to ten days for a fixed fee.

Perhaps most advisable is a specialist foreign exchange provider.

Such providers can offer superior exchange rates when compared to banks, smaller commission charges and lower transfer fees. It is usually also possible to arrange a 'forward buying' arrangement - in which exchange rates are fixed until a certain point - removing concern over concerns over fluctuations in currency exchange rates, although if the rates move in your favour you miss out on any benefits.

It is also vital to remember, once a property purchase is made, demand for currency will not cease. Investors are still likely to require funds for mortgage payments, living costs and a host of other activities - thus a longer-term arrangement with a specialist foreign exchange provider.

Two leading examples of such organisations include Currencies Direct and HiFX.

Finally, it is important to remember funds sitting in a French bank account are likely to attract little interest, so it is often beneficial to transfer just the necessary amount.

Selection

There is a wealth of material available for potential investors in French property. Some of the most common include:

• Newspapers: Offering up-to-date information through news reporting and additional, in depth, coverage through supplements, newspapers can be some of the strongest sources of material for overseas investment ideas.

• Magazines: Bringing a great deal of depth to the market, magazines usually maintain a detailed classified section, presenting concrete choices of overseas investment. Features can also provide off-beat ideas for investment.

• Internet: Speed is the key element to the internet, allowing potential investors to proactively seek out information on their desired locations. Blogs and other user generated content can also offer a more realistic and balanced view of overseas developments.

• Property exhibitions: Live events are perhaps the best source of information for investors. Packed with developers, agents and other service providers, events of these kinds bring together all the specialists in one place, allowing buyers a chance to compare the industry quickly and efficiently.

Completion

Having followed the above steps buyers are ready to make a purchase, sit back and enjoy the fruits of their labour.

More information

For more information the International Law Partnership has a developed guide to buying a property in France, along with an offer of free legal advice.

The Global Property Guide also has a wealth of information available for potential buyers.

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• country guides
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• france
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• property in europe