News and property information on the French property market. Read our market updates and interesting insights into the real estate market in France. Information on properties for sale in France as well as data and statistical reports on what is happening in the property market in France.

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Paris Eiffel Tower Skyline

Paris is known as the romantic getaway of choice in all of Europe by many people. The city has long been an attractive spot for property investors due to the central Europe location as well as its popularity. It made for easy rental or long term letting.

However, cracks are now starting to appear in the city’s property market. Turnovers are on the downturn and property prices have stopped climbing which is concern for many. After the catastrophic turn of events in fellow Eurozone countries like Ireland and Spain, home owners can’t be blamed for worrying about their future.

Reports from the FT of a market slowdown have been confirmed by Parisian real estate agents. These guys know their market and if they are showing concerns, perhaps they do carry validity indeed.

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Mikhail Prokhorov, Russia’s fifth richest man worth about $22bn has denied reports that he was the misery buyer of the €500m Villa Leopolda in Cote d’Azur, the world’s most expensive home.

With the French and Russian media insisting that Mr.Prokhorov was indeed the misery buyer of Villa Leopolda, his spokesman denied the allegations by explaining that his boss refused to do business in France until he got an apology for being held in a prostitution probe.

Roman Abramovich, another Russian magnate and Britain’s second richest resident also denies the purchase. We know for certain that the buyer was Russian.

Central London and the French Riviera are the current hotspots for Russian buyers.

Photo credits: Norilsk Nickel

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French property prices are set to increase dramatically since the introduction of a new high-speed Eurostar link from St Pancras station in London. The high-speed rail line, launched on Wednesday, promises to cut most Eurostar journeys by 20 minutes, making Paris a less than two-and-a-half hour train ride away from London.

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Changes to the tax treatment of mortgages, inheritance tax, wealth tax and health charges will all impact non-nationals with residential property in France that they use as their primary residence. This has implications for as many as 100,000 UK citizens that have settled across the Channel permanently, The Times reports.

The introduction of mortgage interest tax relief is probably the most significant change to the financial framework of investing in property in France. However, it’s essential to realise that the change is subject to strict limitations, the chief of which are that it only applies to purchases made since mid-May and only for the first five years of the loan.

There are also ceilings on the amount of interest that benefits from tax relief  €1,500 for couples and €750 for single people – according to French Property News, which points out that there is a cap on the total proportion of tax relief that benefits from tax relief of 20%. The magazine does not make clear if this is each year or for the lifetime of the mortgage; it seems a difficult calculation for anyone (purchasers or tax authorities) to make if the latter is intended.

Barclays Bank are offering a variable rate mortgage for property purchases in France with an introductory rate of 4.35% and 1.15% above the interbank rate (Euribor), currently 4.781% or a 25 year fixed rate mortgage at 5.10% (not much more than the seven year term fixed rate at 4.95%). Taking the variable rate mortgage (after the first 12 months) as an example it seems that you would only be looking at the purchase of just over €25,000 worth of property.

The new regime seems clearly designed to benefit purchasers at the lower end of the property ladder, giving proportionately the most assistance to purchasers buying properties at around €126,000. In terms of French property this is a much more significant sum than would be the case in the South of England (or Ireland). Possibly, the most interesting question at this juncture is whether or not the French government has plans to be more generous with mortgage interest tax relief in the future, growth and stability pact permitting.

The changes to inheritance tax (IHT) will be important for UK citizens who have retired to France. Property passing to spouses will now receive the same (exempt) treatment as it would in the UK. The IHT allowances for each son or daughter rise from €50,000 to€150,0000. The actual IHT rate remains on a sliding scale from 5% on amounts up to €7,600 to 40% where the taxable element of the inheritance is over €1.7m.

With regard to the French wealth tax (Impot sur la fortune – ISF) the key change is a reduction from 80% to 70% in the proportion of your assets that are subject to the tax. In terms of French residential property, this makes the tax significantly more avoidable. However, it is important to remember that residency in France means that non-French assets come within the ambit of ISF with serious implications for those who still own property in the UK. The recent tax treaty between France and the UK does allow for a five year exemption period from this onerous levy. It’s important to remember that the ISF is levied on the household rather than individuals but there are exemptions relating to the ownership works of art, antiques, farmland and woodland, and assets relating to employment.

The changes to healthcare charges relate to the refunds available to people who have not yet reached retirement age but are not working.

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Nicolas Sarkozy

The answer is probably that it is too soon to tell. In particular, the fulfilment of Nicolas Sarkozy’s plans for the French economy are contingent upon the election of cooperative National Assembly in the June elections.

There has been considerable attention to the introduction of tax breaks on interest payments for mortgages for first homes (main residences). Of course, this will only directly benefit a the minority of foreign owners of French property for whom France is their main place of residence. Also, the impact on property prices will be felt most strongly in well populated areas rather than the sequestered locations that overseas investors favour for second homes. However, resort areas should join in the overall benefit of the change.

President Sarkozy is also planning a reform of French inheritance tax with the intended effect of removing all but the wealthy from its grasp. This is likely to cause some French people to consider trading up the property ladder more favourably.

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House prices in France have skyrocketed by about 210% since 1995, making homeowners including 180,000 second home owning Brits well pleased to see their investments soar. But in recent times, the French market appears to have slowed down, from double-digit gains to about 7.2% in 2006 and a sudden fall to the negative at 0.6% in January this year.

Experts and economists attribute this pandemic to the already cooling US property market & economy. Jean-Paul Six, chief Europe economist for Standard & Poor’, was quoted as saying: “I think we will see falling house prices in France during the coming months and that is going to cause headlines. It is the delayed effect of rising interest rates, which have already gone up seven times to 3.75pc, and continue further up.”

In Europe, the boom has not only been restricted to France alone, but Britain, Spain, Ireland, Scandinavia, Holland and Italy have all enjoyed a housing boom of sorts in the past decade. The exceptions to this have been Germany and Switzerland, where the property market has been flat since 1996.

Spain is where the bubble is really evident, with soaring house prices; homeowners have witnessed a rise of about 270% in the last ten years. And with Spanish banks preference for floating rate mortgages or fixed ones, 93% of Spanish mortgages have been issued on this basis. France compared to this, looks as solid as a fortress because French banks normally restrict lending to a maximum of 75% LTV. Another factor to look out for is household debt to disposable income ratio which in France is a mere 65%, whereas in Britain a stout 146%, and Spain a slimmer 115%.

What has emerged from this French property scare is the glut of housing in France, in part due to an overheated construction industry that could well impact negatively on The French property market. Anyone for Croatia? Read more on Telegraph.

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Speak to property investors these days, and they will talk of Eastern Europe’s emerging markets, or how promising Morocco and Dubai are looking. But for all that, France remains a strong favourite, and with good reason.

Average property prices rose by 10.3 per cent in France in the 12 months to June, and with 60 million visitors expected this year, its second-home and investment markets are unlikely to disappear any time soon.

“Hard-nosed investors might want the higher returns of Bulgaria, but they wouldn’t retire there,” says Stuart Law of Assetz, a property investment consultancy. “Capital growth is slower in France, but the rental market is strong and reliable, underpinned by the tourism industry. And property prices, though rising, remain considerably lower than in the UK,” he says.

In order to try to boost the quantity of accommodation in tourist hotspots and increase revenues, the French government introduced the Residence de Tourisme classification, which is basically a leaseback scheme.

If a new development in France has negotiated Residence de Tourisme status, a buyer can purchase the freehold of the property without paying VAT, and then lease it back to the developer for an agreed period with an annual rent guarantee, typically 3 to 7 per cent. At the end of the lease, the property is returned to the owner.

For the rentals company to guarantee the rent for nine years, the property must be in a high-demand location with good facilities, which would normally hold it in good stead for sizeable capital appreciation. The management company is responsible for upkeep, and pays all utility bills. The local taxe fonciare is the responsibility of the owner. For a two-bed apartment in southern France, this is about €300 (£200) a year, although no taxe fonciare is due on new properties for the first two years.

The freeholder can sell the property at any time. However, the longer the remaining period of the lease, the lower the sale price, and the seller would have to refund the government a proportion of the VAT discount.

But wouldn’t you earn more if you bought a property and rented it out in the usual way? Generally, yes, but there are three points to consider.

First, your annual rental income would not be guaranteed. Second, if you use a lettings agent to manage your holiday home, you must pay them up to 25 per cent of all rentals. Third, you have to sort out advertising, maintenance, change-over costs and emergency arrangements.

Buying an older property in France usually attracts transaction fees of about 10 per cent. Leaseback transaction fees are only 4-5 per cent. Leaseback properties can be put into self-invested personal pension plans, or Sipps. To conform with regulations and attract maximum tax advantages, pension holders would have to cash in unit trusts and transfer the funds to a Sipp, then invest the pension proceeds tax-free in leaseback property.

But there are drawbacks to leaseback properties. As Penny Zoldan, of, a French-property website, says, “Some allow no subletting, and few people seem to sell during their lease period – they wait until it expires and either negotiate a renewed lease or sell”.

It’s also a specialist market: “Leaseback properties on leaseback developments may develop a separate market,” she says. So leaseback property won’t always appreciate at the same rate as “mainstream” homes in the surrounding area.

However, at least this French scheme does offer one of the few long-term guaranteed rental returns for investors – whatever happens in the market.

Source: The Independent Property