For many of our clients, purchasing a property in France is a new venture which can be a daunting prospect, especially when facing new terms in a foreign language that they may not fully understand. At Erna Low Property we are the experts of all things French Property and our team are on hand to ensure that each client has a full understanding of the purchase process and are comfortable with each aspect. We work with only the finest English-speaking legal and finance contacts in France who assist us in helping each of our buyers every step of the way.
Read our comprehensive Guides to Purchasing a Property in France to further your knowledge of the process and contact our team of experts for further information and advice.
How to Buy New Build Property in France
RESERVING AN OFF-PLAN OR NEW BUILD PROPERTY IN FRANCE
For the majority of our clients, buying a property in the French Alps is a new venture. If you decided to buy a French property with Erna Low Property, you can be confident that our in-house advisors in London, along with our wealth of English-speaking contacts in France, will be on hand to guide you through each step of the process.
Buying off-plan is a very popular way of purchasing a property in France - investors are offered a number of incentives for doing so, including reduced legal (Notary) fees and land tax exemptions. The system in France for the reservation of and off-plan property is one of the most secure in the world and investors are protected in a number of different ways.
As the buyer will be reserving a property before it is built, there may also be the potential to amend floor plans and layouts to suit their requirements.
BUYING AN OFF-PLAN FRENCH PROPERTY STEP-BY-STEP GUIDE
A DEPOSIT IS KEY
When a buyer has decided on their French property of choice, following the advice and assistance from our experts, a deposit will be payable to officially remove the property from the market. The deposit will generally be between 2% and 5% of the purchase price, and must be transferred to the Escrow account of the developers Notaire. Notaires are public officials, so the buyer can be confident that their deposit is secure throughout the purchase process.
The full amount of the deposit is refundable until later in the purchase process.
EMPLOYING THE SERVICES OF A NOTAIRE
More often than not, our buyers will work with a separate Notaire to that of the developer. We recommended an excellent English-speaking Notaire to all of our clients. By having a Notaire assisting you with the process, in your own language, you can be confident that you are being guided through the purchase in a way that you will fully understand.
As a public officer, the Notaires’ role is to ensure that the purchase of the property is legal and above board with no affiliation to either the buyer or the seller. The Notaire will assist you with the signature of the reservation contracts, will conduct all the relevant checks required and will help with the preparation and signature of the final deeds of sale.
Please contact us for an introduction to our recommended Notaire.
WHAT DO I NEED TO SIGN?
The "VEFA" (Vente en l'Etat Futur d'Achèvement) is the main contract used for the purchase of an off-plan property in France.
At the same time as paying your deposit, we will need to gather a small amount of personal details from the buyers (full names, address, place of birth, passport etc.) which we will use to prepare the reservation contract (VEFA). This simple contract will include all the relevant information for the property (size, price, specification and latest expected time of completion) as well as the relevant information of the buyer noted above.
The buyer will sign the reservation contact with the help of their Notaire and, once they are happy, return it to our office in London to be sent to France on their behalf.
THE 10-DAY ‘COOLING OFF PERIOD‘
Once the buyer has signed and returned their reservation contracts, the developer will countersign the document. Following this, the file will be returned to the buy. From the day that the countersigned contracts arrive with the buyer, a 10-day cooling off period will begin. These 10 days provide time for the buyer to reflect on the purchase and ensure they are happy to move forward. At the end of this period the deposit will become non-refundable* and the buyer agreeing to purchase the property specified in the contract.
*A VEFA contract is always subject to mortgage approval, so if the buyer is unable to obtain a mortgage the deposit will once again become refundable.
SIGNATURE OF THE FINAL DEEDS
Once the 10-day cooling off period has passed, the Notaires will carry out all the relevant property and land checks and begin the preparation of the final deeds of sale (Acte de Vente), which will make the buyer the official owner of the property.
Our buyers outside of France will, more often than not, sign a power of attorney document in their country of residence to prevent them from having to travel to France in person. Signature of this power of attorney document must be witnessed by a French registered Notaire (there will be more where you live than you think!) and returned to France via the Foreign Office.
Once the buyers’ Notaire receives the signed power of attorney, he can make an appointment to sign the deeds of sale with the developers Notaire.
PAYMENT – IN STAGES
The payment of an off-plan property in France is made in stages alongside the construction schedule. The payments are made as a percentage of the price of the property. As an example:
2% deposit upon reservation
18% upon beginning of construction
15% upon completion of the foundations
15% upon completion of ground floor
20% once the building is water tight
15% once the building is air tight
5% when partition walls are started
5% on completion of construction
5% upon handover of the property
Once all the above has been carried out and you have paid the stage payments in full, you will be the owner of a brand-new property in the French Alps!
A Guide to French Leaseback Properties
WHAT IS A FRENCH LEASEBACK PROPERTY?
The leaseback scheme was set up by the French government in 1986 to encourage investment into tourist destinations in France such as the French Alps, South of France and some major cities. The idea is to create quality properties in these regions that can be rented by tourists and keep the local economies strong. Because of this, the government offer buyers a number of incentives to attract this kind of investment.
French leaseback property benefits:
- Freehold ownership of a property in a prime location
- 20% VAT saving on the total price of the property
- Hassle free ownership – management company take care of rental and maintenance
- Property delivered fully furnished to a high standard
- Investors receive index linked, guaranteed annual rental returns
- Land tax exemptions for first 2 years from delivery of property
- Reduced running costs
- Income tax offset
These benefits make leaseback properties (also referred to as Tourism Residences) an attractive investment for both French and foreign buyers.
The term leaseback is often misunderstood as leasehold properties, a structure which we are used to seeing in the UK. In France, all property is sold freehold and ‘leasehold’ does not exist.
As its name suggests, a leaseback property is therefore a property owned freehold, which is leased back to a management company for a finite period of time.
Why does it work?
France is the most visited country in the world, with figures in 2014 stating that over 83 million tourists travel to France on an annual basis. The tourism industry in France contributes almost €80bn to the French GDP (over 9%), a number which is expected to rise to over €100bn by 2025 according to figures produced by the World Travel and Tourism Council.
These figures have been on a steady incline since towards the end of last century, at a time when international travel became easier and more affordable.
The numbers are also compounded by the fact that many French residents take holidays in their own country, putting further strain on the need for quality tourist accommodation.
Therefore, by offering the various tax incentives to investors in leaseback properties, the government can ensure that accommodation in key tourist destinations is being used to its greatest potential, in return positively contributing to the country’s economy. All the while, the investors are benefitting from a secure investment, which is hassle free and tax efficient.
The leaseback property market
As with any property investment, location is key when purchasing a leaseback property. Successful leaseback developments are always located in prime locations within popular destinations such as the French Alps, the South of France and major French cities. At Erna Low Property we hand-pick the leaseback developments we market to ensure that our clients are always investing in popular locations, where tourism is rife.
It is a common misconception that the sale of a leaseback property is more difficult than a property without a lease attached. We have numerous partners in France whose business models are dedicated to the marketing and selling of leaseback properties and there will always be a market for leaseback properties in prime locations.
Another misconception of the leaseback scheme is that, when selling your property, you must repay the VAT back to the French government. This is simply not the case – the new owner will take on any VAT responsibility for the property.
Other things to consider when purchasing a leaseback property:
The developer – if buying new build, it is important that you are buying a property from a developer with a track record of building similar properties.
The management company – a leaseback property is only as successful as the company managing it. It is therefore of upmost importance that the buyer ensures that they are buying a property that is to be managed by a reputable management company with a strong network of tour operators and rental agents.
As before, at Erna Low Property we pride ourselves in working with only the best property developers, who are constructing properties to be managed by the finest managing companies in France. Any leaseback property that we sell is always then marketed for rent through our sister company Erna Low Travel, a mark of our confidence in the properties we sell.
Frequently asked questions about leaseback properties
Are there other costs to consider?
As mentioned previously, one of the key benefits of owning a leaseback property is that the running costs are largely reduced when compared to a standard purchase. The management company absorb many of the costs and the owner contributes a management fee, which differs per development. Other costs to consider; Taxe Fonciere (French land tax), which is on average €15 per m2 per year and is exempt for 2 years from the delivery of a new build leaseback property.
Is the rental return guaranteed?
Yes, the owner is contractually obliged to receive an index-linked amount of rent per year (often paid quarterly). The owner will receive this amount regardless of how much or how little the property is actually rented for.
More recently, we have seen a number of new developments being sold with leases which do not offer a guaranteed rental return. Instead, the owner is paid a percentage of the total amount of rent received by the management company for their specific property. In cases like this, the leases tend to be more flexible with regards to the usage that the owner has of their property and has the potential to be very profitable for investors who are comfortable with not having a guaranteed return. More details below.
Do I have to pay income tax in France?
A benefit of the leaseback scheme is the ability to off-set any income tax against a number of costs, which should ensure that the owner will not pay any income tax on the rent received for the entire term of the lease. France has a dual taxation avoidance agreement with the UK, along with many other countries, which ensures that if income tax is not being paid in France, it will not be paid if the funds are returned to the owner’s country of residence.
Can I get a mortgage on leaseback property?
Yes, you can finance the purchase of a leaseback property with a French mortgage, with Loan to Values generally up to 70% or 80%. Please contact us if you would like an introduction to our mortgage specialists.
What is the process of reserving a leaseback property?
The process is no different to reserving a standard freehold property in France, aside from a small number of extra documents to sign as part of the reservation contract (e.g. commercial lease contract). Read our guide to reserving a French property.
A new wave of leaseback properties
Recently, we have seen development companies and management companies promoting leaseback properties that take on a slightly different structure to the ‘traditional’ leaseback property.
Owners benefit from many of the same incentives as detailed above, but the owner’s usage and rental works on a more flexible ‘buy-to-let’ basis. In this structure, the owner can use the property up to 6 months per year and are paid a large % of the actual rent received. There is no guaranteed return as with a ‘traditional’ leaseback property, but there is the potential for very good returns. Please contact us for more information.
For any further information or advice on the leaseback scheme and the leaseback properties we have for sale, please contact our team of experts who will be happy to assist you.
Standard Purchase (Classic Freehold)
FRENCH STANDARD PURCHASE (CLASSIC FREEHOLD) GUIDE
Many of our clients who are purchasing a property in the French Alps would rather not rent their property out, keeping it for themselves to enjoy as and when they wish. Others may want to rent their property, but find that the leaseback scheme doesn’t quite work for them.
This is where classic freehold properties come in. As the name suggests, you are the freehold owner of a chalet or apartment and have no obligation to rent your property. The responsibility of running and maintaining the property is yours and you can visit and use the property however you wish.
SO, WHAT DO I HAVE TO PAY?
Classic freehold properties are subject to French VAT, the price you would pay would be VAT inclusive. On top of the purchase price, the buyer would pay a fee to the Notaire for their legal services throughout the reservation processes.
As before, all responsibility of the upkeep and maintenance of the property is taken on by the owner, meaning that each year you will pay all the small costs involved in running the apartment or chalet. These may include: co-ownership fees, bills/utilities (water, electricity, Wi-Fi…), taxe fonciere (land tax), taxe d’habitation (council tax) and any applicable building or contents insurances.
WHAT IF I WANT TO RENT THE PROPERTY?
If you are looking to set up a flexible management agreement on your property, which will allow you to still use the property as and when you wish but also capitalise on the strong rental potential in the Alps, we can help you. In every major ski resort, there will be a number of excellent local management companies who will be happy to take on the management and maintenance of your apartment and chalet. We can also put you in touch with a large, respected management company in France that takes on the management of single properties as well as whole developments.
Please contact us to find out more about the kind of management/rental agreements that are available for the classic freehold properties we have for sale.
Depending on how you wish to use your property, there is also the potential to reclaim 20% VAT on the purchase price on any property newer than 5 years old. To do so, your property must be considered a ‘tourism residence’. What this means is:
- Your property is fully furnished
- Your property is professionally managed and maintained.
- You employ the services of a management company to carry out 3 ‘para-hotel’ services:
- Key handover
- Linen & towel change
- Your property is marketed for rent for at least 182 days of the year.
With these services in place, you can contact the French tax administration to apply for a VAT rebate, offering a huge saving on the price of your property.
Please contact us for more information on the purchase of a classic freehold property in the French Alps.
French Finance & Mortgages
FRENCH FINANCE & MORTGAGES GUIDE
There are many benefits of purchasing a property in France with a French mortgage, especially as French banks can offer a fixed repayment rate for the entire duration of your mortgage at very competitive rates. This also allows clients outside the Euro zone to minimise the risks in relation to the foreign exchange, but also in many cases the interest payable on the mortgage can be offset against any income received from a property that our clients have decided to rent.
Buying abroad is not that difficult, but sometimes the language barrier will put you off. Therefore, we have sourced some extremely efficient, English speaking partners that we would be more than happy to introduce you to.
Contact us directly to discuss your project, and we will put you in contact with our best financial partners and mortgage brokers to help you with your next brick and mortar investment in France.
Erna Low Property has been recommending the services of the company below for years. Their team of experts give our clients the very best service, forecasts and most importantly the best rate for their transactions. Whatever the amount you need to transfer, we recommend you contact:
HALO FINANCIAL Foreign Exchange
Contact: Mimzee Brewer
Tel: +44 (0) 207 350 5473
You can benefit from the following:
- excellent exchange rates
- no transfer charges
- allocated personal consultant
- same day delivery of funds
- up-to-the-minute market information
- daily currency reports
French Notaires & Legal Advice
FRENCH NOTAIRES & LEGAL ADVICE GUIDE
When purchasing a property in France, you will use the services of a Notaire who will oversee and assist you with all the legal aspects of the reservation process. A Notaire is a public official under the authority of the Minister of Justice (Ministère de la Justice) and is appointed by decree. You can be confident that the Notaire you appoint will be working with your best interest in mind, and their sole aim is to ensure that your purchase of a property is carried out in line with French law.
By purchasing a property with Erna Low Property, you will be introduced to an English-speaking Notaire in the Alps to ensure that all the most important aspects of your purchase are being explained to you in your own language.
Amongst other things, the Notaire will review and explain your reservation contracts, advise and inform on any questions you may have relating to private, family, fiscal and administrative law.
WHAT DO I PAY FOR THESE SERVICES?
Notaire fees in France cover their services, any taxes and land registry fees as well as the French equivalent of stamp duty – this is in ‘all in’ sum. The level of these fees is fixed by the French government depending on the age of the property, with buyers benefitting from a large reduction in this fee when purchasing a property off-plan or newer than 5 years.
Please contact us for further information on the role of the French Notaire and to be introduced to our recommended contact.