Home
- » Articles
  - » Financing Your French Property - Buying In France

Financing Your French Property - Buying In France

by IMOINVEST International Real Estate - www.imoinvest.com

As a foreigner buying property in France, we recommend obtaining the mortgage through a French bank for two very important reasons. First, because our agency is in daily communication with several of the largest financial institutions in Europe and can therefore help you receive the credit you are looking for (which are not obtainable by individual devices). Most of these banks specialize in non-resident loans, and we will be there to guide you through the process to be sure everything runs smoothly. Second, because in the case of a Leaseback program you will receive your rental income in €uros. In other words, it is advisable to open a bank account with the mortgaging bank into which you receive your rental income and also expense your mortgage payments, thereby avoiding transfer and currency exchange fees. We will organize this for you, and all signatures can be handled in your home country at the nearest French consulate.

In addition, French banks insure the loan by mortgaging the property which is being purchased. French law also allows you to break the purchase contract and recover any deposits you have made should you fail to obtain the mortgage. The information required by the bank aims at defining your actual income and thus your ability to repay the mortgage. Loans are granted as long as the payments do not increase your debts unreasonably. The basic rule of thumb is that annual mortgage payments cannot exceed 30% of your annual income. In the case of a Leaseback program, keep in mind that the bank will include your projected rental income as part of your total income figure. With the help of IMOINVEST, you can look forward to a mortgage amount of up to 80% of the TTC purchase price (VAT included) as stated in the sale deed, which means up to 97% of the HT price, which is the amount you actually pay.

We are currently seeing very attractive interest rates of 3.5% floating and 4.5% fixed.

What Exactly Is A Leaseback Property?

This unique plan enables anyone to buy their dream holiday home or overseas investment property by covering a lot or all of the mortgage costs with a guaranteed rental income (typically 3 to 7%). The rental income is guaranteed by a large management company that rents the property on your behalf for typically 9 years. You also don’t have to pay VAT on the property which saves you the 19.6% that normally applies – a nice discount!

As owner, you usually have use of the property for up to 6 weeks of the year (if you wish). There are also the added benefits of purchasing the property fully furnished and fitted with kitchen and bathroom appliances, knowing that your property is not left empty and unattended for weeks or months at a time, and that the maintenance and upkeep is paid for by the management company! Too good to be true? Well there are only a limited amount of properties available at any time under this scheme – that’s the catch!

The majority of people who own holiday homes in France, actually only live in them for a few weeks of the year. In addition, French inheritance laws mean that many properties are owned by several family members who cannot agree what to do with the property - this also leaves many properties empty. This is why the French government has introduced 'Résidence de Tourisme', or 'Leaseback' program to increase the quantity of holiday accommodation available in tourist hot-spots and increase foreign investor revenues in France!

Basically you get a holiday home you own outright, usually with use of it for several weeks of the year with a fixed rental income guaranteed for the rest of the year and a discount to market value of the property represented by a 19.6% VAT refund on the whole property from the French government (all new property has VAT in the total price, this refund represents a 16.4% discount to market value).

How It Works

Some new properties for sale in France have negotiated a 'Résidence de Tourisme' status. This means that a purchaser can buy the freehold of the property with or without a mortgage and then lease it back to the developer or a rentals company for a pre-determined period (usually around 9 years) at a fixed rental percentage. At the end of the lease period, the property will be returned to the owner in perfect condition. Most of these properties include pools, workout rooms, reception, breakfast, linen, and housekeeping services, as well as being fully furnished with appliances and furniture.

Each property purchased in this way usually has options for the purchaser to make use of the property for a few weeks of the year at no cost. Each development has its own definition of High, Medium, and Low season weeks and at the time of your purchase you would define how many of each weeks you wanted to keep for your own use, normally zero to six weeks dependant upon each scheme. The owner of each property has first choice of which weeks to spend at the property, and would be sent a form at the beginning of each year to request their preferred weeks.

In order for the rentals company to guarantee the rent for 9 years it is vital the development is in a high demand location with good facilities - the same attributes that tend to drive a good capital gain in a property.

The Notaire's Duties - Who Is The Notaire?

As seven years of law are necessary to graduate, the Notaire is the most qualified professional of the French legal system. The Notaire is both a Public Official and counsel. His qualifications allow him to efficiently advise his clients in specific areas of law such as Real Estate Law, Family Law and Corporate Law. He is able to counsel clients on matters all over France without any restrictions. A Notaire from Paris can therefore equally deal with the acquisition of a house on the French Riviera as well as supervise the purchase of a supermarket in Strasbourg or control an industrial plant in Northern France. The French State confers to the Notaire an authentic power to legalize certain agreements such as Real Estate sales which cannot be enforced by any other means. This monopoly prevents almost any subsequent litigation concerning these contracts. However, the Notaire does not only draft and authenticate deeds. As today's legal transactions are more and more complex, counselling clients is also a major function of a modern Notaire.

How Are The Contracts Secured?

The Notaire is deemed a Public Official with powers delegated by the State to authenticate the deeds he drafts and provide complete security to the contracts he supervises. The authenticity of the deeds grants them an undisputable date and content in Court. The law imposes a personal liability on the Notaire for his professional acts which is more extensive than that of any other branch of the legal profession. Not only would the professional mistake be penalized immediately by a judge, but it would also mean that all of the Notaires would be held liable as they have a common insurance, providing an immediate financial guarantee to the client. The American investor is therefore facing a specialized lawyer fully liable for his deeds. The Real Estate Registration system in France is highly efficient. It takes two months for a sale to be registered, and only the authentic deeds settled by the Notaire can be registered. The content of the deeds are controlled by both the Notaire and the Registration Authority. On one hand this procedure might seem long compared to an immediate transaction occuring in some other countries, but on the other hand it results in a lack of litigation concerning these agreements (0.5% per year on Real Estate transactions). Thus the Notaire has the task to both completely satisfy his clients and to impose some limits to their queries according to his Public Official status.

How Much Are The Notaire's Fees?

Notaire fees vary from 5% for a new property (including mortgage fees) to 10% for an old property, depending on the price of the property. American and British clients undertaking a Real Estate transaction in France should be aware that if there are two Notaires, the fees are shared, therefore, retaining their own Notaire will not increase the professional fees, which are then shared by the two Notaires supervising the contract.

The Real Estate Purchase Proceedings

An overseas company wishing to buy land to construct a building for apartments, offices, or shops will follow the same procedure as an overseas private individual purchasing a property. First, the investor has to find the Real Estate to buy. Many professional Real Estate offices exist in France, and some of them do have international skills, allowing them to deal with English speaking clients. Some Notaires also have a Real Estate department, and might be able to be of assistance in finding a property. Once the Real Estate has been found, completing the purchase involves the following steps:

The Promise Of Sale -
This step is the most important one, as all legal aspects of the sales agreement are fixed at the time. At this stage of the contract, the Law does not stipulate that the deed be authentic, meaning it does not need to be supervised by a Notaire. Once the Promise of Sale is signed, the commitments of the parties to a contract are final and may not be modified. It is at this stage of a Real Estate purchase that the Notaire's advice is most useful for the client because all future obligations of the parties rely on the Promise of Sale.

Many forms of contracts could be signed before closing the final sales agreement, but only the Notaires use the Promise of Sale. The buyer usually places a deposit of 5% of the property price in the hands of the Notaire. This security deposit guarantees the buyer's commitment. The buyer pays the remaining 95% of the property price on the day of the final purchase. Signing a Promise of Sale with a Notaire provides another advantage to the buyer if the purchaser happens to die during the proceedings, an insurance contracted by the Notaires will enable his heirs to finalize the purchase or lose the safety deposit, up to €70,000 under specific conditions.
The Final Sales Agreement -
Once the Promise of Sale has been signed, all the commitments of the parties are fixed. The Notaire must then collect various documents, such as property titles and mortgage documents to verify that all the paper work is in order. Collecting the documents and verifying them may take up to three months. This delay may be shorter, but it may still seem long to many American or English investors. This time period is extremely important because it serves as insurance for the Final Sales Agreement.

After the Notaire has collected all the documents, the Final Sales Agreement is signed. It is an authentic contract and is almost undisputable in court. Litigations on such contracts are very rare, unlike litigations concerning contracts not prepared by a Notaire.

Contact us if you want to know more about it: newsletter@imoinvest.com

The most relevant points for a Notaire to verify during a transaction are the following:
- The Entitlement of the Parties - The Notaire is liable for examining the identity and the entitlement of all the parties involved in the contract. He would, for instance, be liable in the case of a non-binding act of sale if one of the parties is incapable. The Notaire verifies the capacity of the parties by requesting a legal copy of both birth and marriage certificates from City Hall. Unlike other European Union countries such as Italy or Greece, there are no restrictions for a foreign citizen to buy Real Estate in France, according to article 11 of the French Civil Code.
- The Mortgage Situation - A Notaire cannot give the price of a transaction to the seller until he has checked the mortgage situation of the Real Estate to be sold. Upon the Notaire's request, the Mortgage Registry delivers a document detailing the complete mortgage situation of the Estate. If any creditor secured by mortgage is recorded, the Notaire is liable for paying him with the price of the transaction before giving the balance to the seller. This document is valid for two months after its delivery and binds the liability of the Mortgage Administration. The delivery of this document may take up to two months. Because of this kind of delay, Real Estate sales in France may take up to three months. Nevertheless, it permits the transaction to be secured, by the combination of the liabilities of both the Notaire and the Mortgage Registry Services.
- The Town-Planning - The Notaire must check the applicable Town-planning regulations on the Real Estate to be sold, and inform the buyer of the consequences of these regulations. He requests from a surveyor a complete report which he then encloses in the final sales agreement. Among the rules to be verified, the Notaire may, for instance, verify that there is no easement on a piece of the property. The surveyor is liable for the content of the delivered document while the Notaire is liable for controlling and reporting it to the buyer. In addition to the mortgage document, the delivery of the above-mentioned document requires a certain delay. Still, it provides the guarantee of a secured transaction.
- The Property Verification - The Notaire must verify the property title. He must search up to thirty years before the transfer of title which is the limitation period for all Real Estate transactions to be brought to court. The Notaires must also keep their deeds for one hundred years after their execution. The property verification is essential to prevent any type of litigation, and particularly when the assets have been acquired through a deceased Estate. The above-mentioned examinations by the Notaire are the predominant ones. However, others such as clearing preemptive rights or balancing the account with the co-owner's manager do exist. Generally three months are necessary for all the examinations and allow any buyer to be fully secured during the transfer of title.
Contact us if you want to know more about it: newsletter@imoinvest.com

In Whose Name Should You Purchase Property?

There are a number of ways to purchase Leaseback property in France, and the way that is best for you will be determined by your particular standards. Your choices include:

In Your Own Name
Joint With Your Spouse or Co-Purchaser
In the Name of Your Adult Children, or the Name of Your Heir
As an SCI, which is a special French company which exists mainly to own and manage French properties
As an Ordinary Limited Company, whether foreign or French

Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances. We shall be pleased to discuss the various ways of buying with you and advise the most advantageous method to suit your needs.

It is worth paying careful attention to this point because of the potential tax and other savings that can be made at a later stage. These tax savings arise because of the French system of inheritance tax under which gifts upon the event of a death can still attract very high rates of taxation. For example, it is possible to pay up to 60% tax on inherited wealth.

The tax savings also arise because of the way that each time a property changes hands, certain taxes and fees become payable. If, therefore, you can prevent the property being inherited and minimize the number of times it changes hands, you can greatly reduce your tax liabilities.

As is always the case with tax savings plans, there is a danger that the government can come along and close the loopholes that allow these plans to operate and, as always, there are disadvantages to them as well as advantages. In each individual case, you will have to weigh up the advantages and disadvantages to decide how you wish to deal with the transaction.

That’s what why we’re here – to help you !!! Contact us if you want to know more about it: newsletter@imoinvest.com

About The Author
IMOINVEST International Real Estate
newsletter@imoinvest.com