Sunny times in South of France

Here Paddy Gibbins, our resident Property Investment Specialist, covers the issues to consider before investing in property in the South of France.

Long term property investment in France

First of all you should know that this should be a long term project as it is extremely difficult in France to buy and sell a property in a short timeframe while making money and avoiding punishing taxes. Therefore buying and selling within two years, and walking away with a healthy untaxed profit is rarely, if ever, seen in France. The most common decisions that Paddy Gibbins sees are between buying new build properties or investing in old French property.

Buying 'Old Stones'

Old Stones

Paddy states that "bargains are still there to be had if investors are prepared to put the work in researching the market. In particular, when approximately 50% of properties in France are sold direct by the owner, it is important to have people on the ground who can find the 'hidden' properties that are on sale".

Buying a new build property in the South of France

Buying a new-build property will, almost without exception, take you longer.  This is because, in most cases, you are going to buy off-plan – in other words, the property does not exist when you decide to buy it.  You will be buying from proposed plans or drawings and will use these alongside the information you have about the area.  Only once the building is delivered will the property become available.  Over these months of building, you will be making payments towards the cost of your property (see paragraph below “Schedule payments”). Staged payments mean that the costs of purchase are spread over a longer period, which make it easier for you if, for example, you are releasing money from savings plans and would rather not do it in one transaction.  With usually only 5% deposit required against 10% for an older property, the payment blow is softened from the very beginning.  Add to this the lower Notaire’s fees, typically between 2 to 3% instead of 7% on a re-sale property.

Compromis de vente

Once you have decided on the property, you sign a Contrat de Reservation or Compromis de vente and pay a deposit of 5%.  The contract will specify the building schedule and payments to be made at each stage of the construction. Payment schedules are strictly regulated by legislation and all payments are based upon the price inclusive of VAT.  A typical schedule is as follows:

 5% upon signing the Compromis de vente
29% upon signing the Acte Authentique
33% upon completion of the foundations and 1st habitable floor
27% upon completion of the partitions
 6% upon delivery

French regulations regarding purchase of new properties are very protective of the purchaser. The developers must have a bank guarantee in place as a warranty that the purchaser will get his property even if the developer runs into any financial problems.

If you are taking out a mortgage to purchase the property, the lender will pay the stage payments as necessary once you have paid your contribution – deposit – it will, however, check with you prior to handing over any money.  Your mortgage repayments are differed until you have taken possession of your property.

French Property Investment costs

Once you have purchased your property, you will need to discount a number of French property charges from your investment return.

Maintenance Charges

Investment costs

Local Authority Taxation

Once you buy a property in France, you will be subject to two local property taxes which you will have to pay:

Taxe d'habitation (Residential Tax)
Residential tax is an Occupation tax payable by anyone who lives in a house in France on January 1st of the tax year.  The amount of tax payable depends on the size of the plot, size and standard of the house, number of bedrooms and according to the national rental value of the property. The tax is payable by the occupier regardless of ownership.

Taxe Foncière (Local Authority TAX)
This tax is similar to the rates levied in most countries (similar to the Council Tax in the UK), and is used by the local authorities to cover the costs of rubbish collection, lighting, maintenance of communal areas etc.  The tax is levied on the basis of the theoretical rental value of the property, and is adjusted annually in line with inflation. For new build property there is an exemption of two year which is noted on the planning permission.

Tax Upon Disposal

There is a terribly convoluted method of calculating the CGT payable in France depending on residency status and length of ownership. In the main, the sale of a property which has been owned for more than five years will be CGT exempt if you have lived in France for one year at some stage. If not, the difference between the sale and purchase price is calculated with 10 per cent allowance for acquisition costs and 15 per cent for repairs and improvements (or more if documented). There is a small threshold of about €10,000 depending on marital status and number of dependants but all gains over this limit are taxed at 33.3 per cent.

Inheritance Tax

Inheritance tax is payable in France at rates varying from 5 per cent up to 60 per cent, depending on the relationship between the donor and recipient and the value of the property in question. As with other countries it is possible to alleviate some of this tax bill by choosing the means by which you purchase carefully. The "usufruct"or life interest structure is often used to reduce taxes payable in such instances, it is therefore important that proper legal and fiscal advice be taken before consideration is given to any purchase.

For further information see French Property Taxes.

Paddy Gibbins is the Managing Partner of Buy To Let Montpellier. His company specialise in helping Property Investors find suitable investment properties in the South of France. Paddy also has extensive contacts with reputable Real Estate agents across the South of France. If you are visiting the South of France to view property, Paddy is excellent at developing property viewing schedules that meet your requirements. You can contact Paddy at: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Tel: +44 (0) 870 800 3232
Mob: +33 (0) 6 26 67 43 76
www.buytoletmontpellier.co.uk