Safe as houses
Karen Tait explains why France is a safe bet when it comes to purchasing property – unlike some overseas destinations
Television producers love to build something up and then knock it down – as witnessed by the rush of overseas property programmes a few years ago, closely followed by series such as Holiday Homes from Hell. Car crash’ TV and lurid property scandal’ headlines are difficult to ignore, and there’s no denying the negative impact they can have on the overseas property market. Stories of land grabs’ in Spain or disappearing developers in Bulgaria or Dubai can make you think twice about investing in a property abroad.
The good news, however, is that France’s reputation remains remarkably unsullied. French estate agents and developers are strictly regulated, and buyers are well protected by the law. What’s more, with its carefully controlled lending climate, and lack of boom and bust’ trends within the property market, France has been less affected by the global recession than many of its neighbours.
Here are some examples of property nightmares that just wouldn’t happen in France.
Widely reported in the press and on TV, Spain has been heavily criticised for its land grab’ town-planning laws, which allow developers to demand land from private owners, often at a fraction of its market value. The Valencian region has been particularly badly hit. In many cases, owners have been forced to contribute to urbanisation costs too, and the country views they fell in love with have been replaced by new buildings. The European Parliament has condemned Spain on this issue. However, it has no jurisdiction over national planning laws, so is powerless to intervene.
In Spain, town-planning laws are devolved to the autonomous regions, which explains why there is a problem in some areas and not in others. The issue revolves around classification of land: sometimes an area classified as rural gets reclassified as suitable for ubanisation and by law property owners can’t stand in the way of this reclassification. Where developments are deemed to be of benefit to the community (new infrastructure etc) and therefore to homeowners too as property values rise, owners are expected to contribute with land and/or financially.
“The French authorities do have the power to take possession of your property under exceptional circumstances,” comments architect Tim Harris. “These need to be justified in law and the owner given appropriate compensation (a bit like in the UK). This is set out in Code de l’urbanisme article L230.
“Changes to the designation of land are constantly occurring. But they can’t make you leave your property without the above legal justification and compensation.
“The problems experienced in Spain can happen in France but the fundamental difference is that the state is responsible and is liable to compensate the owner. The French legal system has been set up to protect the citizen and they are very proud of it.”
Solicitor Sue Busby explains further: “Occasionally, a local authority may take a piece of land if it is in the interest of the commune. For example, if there is a dangerous bend in the road that can be smoothed out to improve safety, the local authority may earmark the land as being included in an alignment project.
“However, very often the local authority prefers to wait until the owner is going to carry out some work on the land such as an extension to the existing building before exercising the right to take a piece of land that has been earmarked. Planning permission will then be given in return for the piece of land required.
“It makes sense to ask your lawyer to check with the local authority before you buy as to whether any such alignment projects exist in the area where your property is situated.”
Probably the worst aspect of the English property market is the fact that a purchase is not a done deal until right at the end of the buying process, when both parties exchange contracts and complete on the agreement. This, of course, means buyers or sellers can pull out at any time before then, even on moving day, often causing a property chain to collapse and heartbreak all round.
In France this can’t happen. This is because the sales agreement becomes legally binding towards the start of the process. Once a price has been agreed, the buyer/s and seller/s sign a contract, usually called the compromis de vente, which is followed by a seven-day cooling-off period, during which the buyer can pull out for any reason. After this, however, they are tied into the agreement, with penalties if they do pull out. If only we had the same deal in England!
“The French process ties both parties into the transaction much earlier than is usual in English law, where most of the lawyer’s work is carried out before the exchange of contracts, leaving room for gazumping and indeed lowering of the price by the purchaser,” explains Marie Antoinette Bassini, of Kingsfords Solicitors.
“Any get outs’ to the sale are provided in the general and suspensive conditions of the compromis – and these are almost entirely to the benefit of the purchaser.”
“There are few things more disappointing, after hunting around and making a decision to buy your ideal home, than having someone else come along and offer a higher price and steal it away from you,” adds Sue Busby.
“Fortunately, this rarely happens in France and it would be illegal for a vendor, having agreed to sell his property to you, to then accept a higher price from someone else.
“Although the purchaser can withdraw during the seven-day cooling-off period, which is allowed after signing the contract, the vendor does not have this possibility.”
Boom & bust
The global recession has affected property markets across the world, but France has been partly protected by its stringent lending criteria. Although prices did fall, this was by considerably less than in other countries, and in many parts of the country, they are on the rise again.
It certainly compares favourably with Spain, for example, where a huge stock of newly built homes still wait to be sold (an estimated 700,000), and prices have fallen by as much as 50% in some areas – it’s estimated that over a third of all Spanish properties have been bought by Brits in recent years and those selling up now are faced with much lower property values than when they bought.
Spain’s fellow PIGS’ (the unfortunate acronym used to refer to the weakest EU economies, namely Portugal, Italy/Ireland, Greece and Spain) haven’t fared much better. Ireland saw its property bubble burst with a very big bang, and in Greece the property market is still deflated (Portugal’s housing market has been less affected while prices in Italy have remained stable during the crisis). Greece, Ireland and Portugal have all been recently bailed out by the EU, of course.
Further afield, Dubai too has had its problems; many of its real estate projects were put on hold or cancelled when the easy credit that had fuelled development in the city ran dry with the onset of the global financial crisis. And in the USA, where the subprime mortgage crisis kickstarted global problems, the housing market remains in the doldrums.
“France has a very well established property market for non-residents and international second homeowners that, in comparison with other overseas markets, has a smaller percentage of new-build and off-plan properties,” says Simon Smallwood of International Private Finance.
“This more sustainable supply/demand scenario has ensured that the French lenders are exiting the credit crunch in a stronger position than lenders in other countries, which in turn should help continue the robust comparative performance of the French property market.”
“Practices such as under-declaring on the value of a property to reduce tax liabilities is virtually non-existent in France,” he adds. “The same cannot, unfortunately, be said for other popular international markets.”
New-build specialist Patricia Fevrier of A Place in France explains that there is currently a housing shortage in France: “Some 500,000 to 800,000 dwellings are needed to meet the growing population’s requirements – and new-build projects are not always available in the areas where demand is the greatest.
“French developers are struggling to meet the demand from French people as far as main homes are concerned and this is now reflected in the diminishing number of projects providing second homes as these are not the priority. Oversupply is therefore not a problem affecting the French new-build market.
“It’s easy to quote statistics about the long-standing stability and robustness of the French property market when compared with some of our European neighbours and even the USA,” comments Trevor Leggett. “The research team at Knight Frank recently sent out a press release saying that house prices in France rose by 9.5% in 2010 and this followed similar figures from the Notaires de France which quoted prices as rising by 6.9% last year. A more telling figure perhaps is the increase in the overall number of house sales from 590,000 in 2009 to almost 800,000 in 2010 – the buying process here is safe, well regulated and protects the buyer. International purchasers can feel secure in their investments.
“If you look beyond the statistics, our clients buy houses in France because they love the country and the culture. France regularly tops the annual quality of life’ surveys and offers a huge stock of beautiful and well-priced property to choose from.”
In parts of Spain and Ireland, whole estates remain unsold, perhaps with one or two owners stranded’ in the middle, and elsewhere you see abandoned half-built developments – there simply isn’t enough demand from national or foreign buyers.
You have to hand it to the French. In the middle of a global recession, Sarkozy kept the new-build market going by offering extremely attractive tax incentives to French nationals, such as the Loi Scellier scheme, where buyers benefit from tax reductions of 25% for 2010 investors, 15% for 2011 investors and 10% for 2012 investors.
So with incentives like these, why haven’t huge estates been built in France as in Spain? To some extent this is due to a different kind of overseas buyer fuelling demand in the boom years – Brits buying in Spain tend to want new property whereas those buying in France generally prefer older homes – but it’s also due to France’s stringent planning laws.
“Over the years we have focused our attention investment-wise on France in particular,” comments Joanne Yellowlees of Erna Low Property. “There are specific reasons for this – the French are careful in their planning regulations, so it is difficult to get agreements to build until all avenues have been explored concerning local infrastructure, environmental issues, and long-term town planning.
“In France, you would never find situations that occur in the likes of Spain or Bulgaria, where many of the coastlines are littered with unfinished developments due to weak planning laws and greedy developers. Nor would you find empty’ resorts because second homes are carefully coordinated so as not to allow ghost towns to be built where people only use their properties for a couple of weeks a year.
“An example of this is how the French allow their planning in ski resorts – pure tourism areas – where the local authorities generally only give permits to residences de tourism which make sure that buildings are not endlessly empty. Investors buy their properties freehold and then rent them back to a management company, which keeps the residences full –excellent for the local economy – and it also gives a rental return to the investor,” she adds.
Another unfortunate side effect of the oversupply of new property in Spain is that in some areas the existing infrastructure (water supply, sewage, waste disposal etc) isn’t able to cope with the extra demand. Luckily, this hasn’t been the case with new developments in France.
“France’s infrastructure is one of the best in the world and ongoing investments mean that it can cope with the new housing requirements,” says Patricia Fevrier. “In many cases developers also work with the local authorities in the areas where new residential developments are to take place and contribute to the upgrade of the local infrastructure if and when required (a new roundabout, cycling path etc).”
A headline in the Telegraph last year claimed that almost 400 Britons lost �43m in a Spanish property deal – they had put down an �85,000 deposit for off-plan homes that were never built as the land still belonged to its original owner. Similar stories have come out of Bulgaria.
This wouldn’t happen in France, as Patricia Fevrier explains. “The industry is highly regulated and government-controlled. Developers must by law be financially bonded. In addition, each new development must have a guarantie de parfait achevement’ which means that even if the developer was to fail, the project would be built and handed over as per the advertised specification.
“Clients’ deposits and monies are also placed in an escrow account, a compte sequestre’, and developers do not have access to these funds until the sale is completed and the acte de vente is signed confirming that the project is going ahead.
“When buying off-plan payments are made in stages. Before the developer is able to call upon the relevant stage payment, an independent certificate of work progress (attestation d’avancement des travaux) must be produced to confirm that the construction has indeed reached the stage for which the monies are now required. This gives the buyer complete financial protection.
“Regarding lack of planning, and developers not owning the land, again the law is on the side of the purchaser. The deed of sale must indicate the history of the land on which the project is going to be built (this can go back two or three previous owners!), the date on which it was purchased, who dealt with the transaction, and full details of the planning permission and the name of the local authority which granted it.”
In another Spanish case, the courts ruled that a buyer who had lost his deposit on a property that was never built had the right to demand a full refund from the bank that had guaranteed the construction. This should give hope to victims of Spanish property scams, however, you have to take into account the fact that many Spanish banks are in trouble too, and many of the developers have vanished or gone out of business.
“The issue with many of the Spanish cajas (regional building societies) is that they have provided the development finance for many of these large projects and are therefore already significantly over-exposed to these properties,” comments Simon Smallwood. “They therefore have little appetite to provide end-user mortgages to potential buyers of these properties – exacerbating the problem.
“The French market has been more cautious – the majority of lenders have limits on the level of exposure they can have on a particular development (i.e. they’ll only finance a maximum of 20% of the properties), reducing the risk for the bank in the event that something goes wrong.”
But are there any situations where you could lose your deposit in France? “Possibly,” says Marie Antoinette Bassini, “but if you have paid the deposit into a notaire’s escrow account, this is less likely to happen. Make sure to check that the developer is duly registered, and check the terms of the reservation contract you are signing before parting with any deposit money. You should also make sure the developer owns the land on which the project will be built.”
Sue Busby adds: “French agents are obliged under the Loi Hoguet to have a special account for holding deposits. The amount of money held must not be higher than the financially guaranteed amount. As long as you make sure that your agent has this type of account, your deposit should be safe. If it is paid to the notaire, it is held in the notaire’s bank account, which is in fact the French Treasury, so that is about as safe as it can be!”
Sadly, many British expats have fallen foul of Spain’s retrospective planning laws. Homeowners have been ordered to demolish their properties as they are deemed to have been illegally built.
According to government figures, some 100,000 homes built around the coast during the last decade face unresolved planning problems, with 12,697 irregular’ constructions in the Almanzora Valley alone, the majority belonging to British expats who bought their homes in good faith. The situation is so bad that the Telegraph launched a campaign in support of the hundreds of thousands of “British and other expats who have fallen victim to urban corruption and the confused state of property law in Spain”. Although national rulings are being brought in to prevent this happening in the future, many people believe these national laws will not be enforced at a local level.
“The problem in Spain stems from a lack of determination in the planning process,” explains Tim Harris. “The French system allows no such ambiguity. The building must be completed exactly as per the approved documents and signed off. It is difficult to buy a building that does not have either final approval or a contract binding the contractor to achieve it.”
Marie Antoinette Bassini advises that you check the permis de construire before you commit to a purchase: “Ask to see it. If in doubt, go to the mairie and check it out for yourself. Your legal adviser, if you have one, should ask for a copy of this as a matter of course. If you are buying a relatively new property, there should be a paper trail of applications, plans and permis de construire, followed by the statutory declaration at the mairie that the works have been completed in compliance with the permis. All these documents should be made readily available to the potential purchaser: you can walk away from the transaction before committing yourself in case of doubt.”
Of course, problems can occur in all countries, including France, and if you’re ever worried about a property purchase, you should seek advice before you commit. What’s clear is that France is a safe and stable place to buy property, and that despite the global financial crisis, people still want to buy there.
I’ll leave the last word to Trevor Leggett: “I’m often asked why France remains so popular with international buyers. I don’t need to mention market stability, return on investment or sensible bank lending. I just repeat this quote I heard when I first moved out here: ’Everything ends this way in France – weddings, christenings, duels, burials, swindlings, diplomatic affairs – everything is just a pretext for a good dinner.’ Now that’s what really sets us apart!”
Patricia Fevrier, A Place in Francewww.aplaceinfrance.co.ukSimon Smallwood, International Private Financewww.internationalprivatefinance.comTrevor Leggett, Leggett Immobilierwww.frenchestateagents.comJoanna Yellowlees, Erna Lowwww.ernalowproperty.co.ukMarie Antoinette Bassini, Kingsfords Solicitorswww.kingsfords-solicitors.comSue Busby, France Legalwww.francelegal.co.ukTim Harris, architectwww.timharrisarchitect.com
David Morris-Johnson explains why he chose France over Spain, Portugal or Italy
Six years ago, when my partner and I decided to leave the UK, I had no preconception of moving to France. Over a year we looked as far afield as Brazil and New Zealand but eventually opted for southern Europe because it provided a better fit with our plans for a small-scale year-round hospitality business.
We set out in a camping car, expecting to spend a year or so on the road. But within four months we discovered Blanc, an abandoned hamlet in the south Aveyron on the Languedoc border, which we’ve since been gradually restoring for holiday lets. Because we’d already done our homework, we knew the regional property and tourist markets well enough to recognise what we were looking for when we saw it.
Why did we choose France? Even before the eurozone crisis, Portugal, Italy, Greece, and Spain threw up both economic and cultural downsides. We’d had great holidays in all of them, but outside (or even within) the cities, grinding bureaucracy, poor rural infrastructure and inflexible attitudes can prove frustrating for Brits used to a more pragmatic approach to everyday life.
Eastern Europe, which we also visited, still presents obvious opportunities for home-seekers, and excellent value for money. But we missed the Latin culture which draws so many northern Europeans to the Mediterranean countries.
France on the other hand has everything: particularly in the south, where the Pyrenees and the Alps overlook easy access to both coasts, combined with an unparalleled range of scenery and all the influences of the Mediterranean, from Catalonia to Liguria, Sardinia to North Africa. You’re really conscious of being at the crossroads of the great civilisations of classical and medieval Europe, while still being in reach of the north.
And everything works here! The roads are famously good, but that’s just the tip of the iceberg which is the modern French state, where transport, education, healthcare and civic society reflect a broad national consensus over public and private services. Then there’s the rich social history, cultural heritage and activities, and of course the food.
If you’re looking for a safe bet, France also offers stability: throughout the EU, France’s residential housing market is the only one that showed significant and consistent growth – with no major year-to-year fluctuation – in both 2009 and 2010, less dramatic than some of the Nordic countries but more reliable. The French are financially conservative, which has protected them from the excesses of both the banking and property cycles found elsewhere, and allows estate agents here to remain uncharacteristically optimistic.
In other ways too, France definitely repays longer-term investment of time and effort. Of all the countries of southern Europe, it’s probably the hardest to live in without a reasonable grasp of the language, but this is actually an advantage – it discourages superficial visitors and encourages you to engage with it, thus strengthening all the good points listed above.
If you’re looking to rent out your property for part of the year, remember that Paris is still the number one point of entry for tourism worldwide, making France very attractive as a touring base. Add to that the domestic market, which is enormous, and you have an ideal mix year-round.
The last, and possibly best reason to consider France as the destination of choice is that, underneath all the historical rivalry and mistrust between our two nations, we’re actually very compatible. Multicultural since long before Britain, the French combine Mediterranean qualities of good living with a Teutonic practicality, while retaining a Celtic sentiment familiar to anyone with Irish, Scots or Welsh connections – a heritage unmatched by any other country in the region. www.blancsursanctus.fr
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