No second guessing: Buying a second home in France

Buying a second home in France? Do your sums first, writes Peter-Danton de Rouffignac, and your property will pay its way

If you decide to buy a second home in France, you will be joining some three million French homeowners who own a house or apartment in addition to their r�sidence principale. The main home may be owned or rented, the latter often being the case in cities such as Paris where prices are prohibitive, and the alternative is to buy a second home for holidays, as an investment and security in later life. Many choose to let their second home, either on a permanent or occasional basis, and it is here we can learn from the French, especially when it comes to doing the arithmetic.

LOCATION, LOCATION, LOCATION First the statistics. Three quarters of French second homes are located in rural areas, where four-fifths are houses, many I suspect inherited or held in the family for several generations. The remainder are on the coast, 80% of which are apartments in co-owned buildings.

Property prices are generally higher on the coast, due to the restricted amount of land available for development, and reduce as you travel inland. In selecting their second home, 40% of buyers admit they chose the region first, then decided on the property. Most people look to buy within a three-hour commute of their main residence.

Despite the large number of second homes, they are occupied relatively infrequently, an average of just six weeks per year. However, closer to Paris and other major cities, some owners are reversing the trend, making their country home their principal residence, and only visiting the metropolis five or fewer days a week for work.

The French are catching up with the worldwide trend towards working at home at least part of the week. Many new houses and apartments feature a bureau as standard.

Second homes enjoy a lively sales (and rental) market. Half of all holiday-homeowners sell on within 10 years of purchase – surprisingly, as in a further five years they could escape capital gains tax on resale. Perhaps, as families grow up and children become independent, holidays may be taken abroad or in another part of France, and homeowners start to question the real cost of owning a holiday home.

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Over a third (1.4 million) of second homes are rented out, either long term or as holiday lets, making the market extremely competitive. Nearly half are managed professionally by local agencies in return for a commission, or through longer-term contracts with organisations such as Cl�-Vacances.

Properties offered on longterm rental comprise mainly studios and small two-room apartments (34%), 51% are medium-sized (three to four rooms) and the remaining 15% have five or more rooms.

As a general rule, the smaller the property, the higher the turnover of tenants (usually students and young professionals) and the corresponding wear and tear on furnishings and fabrics. Larger apartments are often let unfurnished and typical tenants are longer term and comprise working parents with schoolage children.

FINDING YOUR REGION, CHOOSING YOUR MARKETEvery region can offer a diversity of rental markets and it’s essential to do your research. Taking my own area, the Pyr�n�es- Orientales (66), as an illustration, there is certainly a wide choice of properties for investment and also a number of distinct rental markets.

The largest and most obvious of these is the summer rental market, where during the high season weekly rents are equivalent to the longerterm monthly prices charged outside the most popular sixweek holiday period, from early July to the end of August.

Competition, however, can be fierce as the main holiday resorts have an exceptionally high percentage of second homes – 60% in Canet, 71% in St Cyprien, 72% in Argel�s sur Mer and 66% in Collioure. There is also growing competition from increasingly luxurious campsites: dismiss any thoughts of the early Butlin’s equivalent! Of the overall housing stock (principal plus second homes), the bulk of properties are houses, ranging from 60% in Canet and St Cyprien, 65% in Argel�s and just over 50% in Collioure. Of the remainder, just a tiny percentage (3-5%) are studios, and the largest category (around 50%) is three- or fourroom dwellings, while under 20% are one-bed flats.

The departmental capital, Perpignan, presents a number of contrasts. Of the overall housing stock, houses comprise 65%, apartments just 33% with a high percentage (61%) of owner-occupiers. Around 75% of properties are principal residences – a reversal of the position in the coastal resorts.

Less than 3% of Perpignan’s apartments are classified as studios, somewhat surprising in view of the 8,000 students at the local university. The largest single category (60%) is made up of houses and apartments of three rooms or more, reflecting the high rates of owner-occupation by married couples and families. Some 35% of homes have five or more rooms, representing another facet of the region’s discreet prosperity.

DOING THE SUMS In terms of property purchase price versus potential rental income, Perpignan has some of the area’s lowest property prices, averaging €2,000/m�, and a typical studio or small two-room apartment could be rented out for €350-450 per month, against average monthly mortgage payments over 20 years of about €800.

If your ambitions are slightly higher, prices in the Mediterranean coastal resorts of Canet, St Cyprien and Argel�s are closer to €3,000/m� rising to €4,000/m� around the yacht marinas in St Cyprien and Argel�s. In the historic village of Collioure, prices have been known to reach €6,000/m�, with no sign of a dramatic fall to come.

The cost of credit when buying a typical €200,000 property will typically add a further €100,000 to the price (at 4.20% over 20 years), payable at, say, €1,200 per month – an amount that has to be factoredin against any potential income from rentals.

Even a 1% rise in interest rates can add 10% to the square metre price of the property, so it is a good idea to keep an eye on bank interest rates as well as property price fluctuations. Insurance, maintenance, taxes, agency fees and the occasional month or two without a tenant can also erode rental income.

On the plus side, although French rents fell by 1% in 2009, this followed a decade of annual increases totalling 41% since 1998. Looking at the country as a whole, rents remain at their highest in Paris where a typical 50m� apartment costs €825 monthly. This is followed by Nice where a typical monthly rental is €600 for a 50m� apartment.

The cheapest place to rent in France is Limousin, where rentals are half those in Paris (€420 for a 50m� apartment). In Languedoc-Roussillon, the same sort of property would cost €500-525 monthly to rent.

As always, there can be wide variations in rentability depending on the property’s location, age and condition etc – all factors to bear in mind when seeking your ideal buyto- let property in France.

Peter-Danton de Rouffignac advises property buyers in Pyr�n�es-Orientales www.FranceMedProperty.blogspot.com