Is French new build property still a safe haven?

Over the last 12 months the overseas property market has undergone fundamental changes which have seen the buy to let sector recede due to lack of funding and a sharp drop in rental yields, and a noticeable downturn in second home purchases. One thing remains certain, however, and that is that a property purchase in the right location, at the right price and for the right reasons remains a good purchase.

As a holiday and second home destination France remains a strong favourite with the British clientele. Better the devil you know perhaps. Proximity, a safe environment and good lifestyle have however become priority requirements and France continues to tick all these boxes. As far as property is concerned France has always taken a long term approach to property buying and investing. This French thought process often perceived as rather conservative has over the years greatly reassured buyers. It has also brought the property market long term stability and reliable capital growth. This has not changed and despite the financial turmoil France is still building and selling. There is an acute shortage of homes (estimated at some 800,000 dwellings) and new government initiated measures and French developers are committed to service the demand. To compensate for the reduction in purchasing power of the French clientele property prices are not so much coming down as land and materials remain expensive but leveling up. New building regulations for better insulation and higher energy savings are regularly brought out which developers have no choice (for the long term benefit of the purchaser) but to integrate into the build specification and overall construction costs.

Unlike the UK property prices have not in recent years “shot up” but followed a steady more rational increase. New build prices are now around €3,400 per m² across the board and still average an annual 3.4% increase. In the second home or “residence secondaire” sector which is what is of most interest to our British clientele, French developers are more likely to delay the launch of new developments rather than lowering prices if they are already committed to purchase the land. This will undoubtedly create a penury which will prevent prices from coming down in the long term and even pave the way for future price increases. On built stock developers are keen to boost sales and do advertise “one off” promotions and offers. These can turn out to be excellent opportunities for buyers in a position to move rapidly. We are now seeing projects coming onto the market with a Purchase Back guarantee which underpins the long term investment potential of the properties on offer.

Due to stringent lending criteria French banks have not been as affected by the credit crunch as we have seen in the UK. The rule in France is that you cannot borrow more than a third of your disposable income. This approach may have lacked flexibility in the boom years but has prevented debt levels from spiraling out of control. French banks are keen to lend and it is worth comparing all alternatives in order to reduce interest rates differentials and the low Euro/Sterling exchange rate negative impact. Both variable and fixed rates mortgages are available and Banks would lend up to 70% - 80% of the purchase price depending upon collateral.

For a number of years French developers have selectively catered for the French investment market which allows buyers to take advantage of the Government tax incentives on offer (Borloo, De Robien, ZRR, etc). These investment properties are not necessarily located in the areas which would be of attraction to British purchasers looking for a family holiday home or retirement property.

Which property to buy is very much a question of personal taste. Old and new both have positives and negatives. New may for some lack character and renovation costs in France can rapidly exceed one’s budget. The French over the last 10 – 15 years have turned to new build. Buying off plan in France is a straightforward and safe procedure and the buyer is given considerable legal protection. These benefits are well documented and bring reassurance to French and foreign buyers alike in a period of uncertainty.The deposit required for the reservation cannot exceed 5% of the purchase price.

This is a real benefit that reduces the purchaser’s initial outlay. In the case of other property transactions (resale, renovation) the deposit required is 10%. The law (Article R.261-29 of the Construction and Dwellings Code) requires the deposit to be paid into an escrow account (compte sequestre) where it cannot be touched by the seller/developer until the sales goes through and the deed of sale is signed. By law the deposit is also fully refundable and will be returned to the purchaser without any retention, under terms clearly laid out in the contract (failure to raise finances, decision to cancel during the seven day statutory cooling off period, etc). Other financial advantages worth highlighting include stage payments which are made as construction progresses and low French legal fees. These which cover the Notary’s fees and the deed documents registration fees amount to only 2.5% to 3.5% (as against 6% to 8% for a resale property).

In France the selling of new property is strictly regulated with government regulated contracts aimed at protecting the interests of the buyer and providing full building guarantees.

A Place in France for FrenchEntree