Buying to let in France (vacation rentals as investment in France)
Friday March 16, 2007 by Kevin Brennan
reprinted courtesy www. guardianabroad.co.uk 3/16/07
The French regional property rental market has shrunk dramatically in recent years. In the past one could normally expect to rent a holiday property, in most regions, for 12 weeks per year. Now, without choosing very carefully at the outset, one can only expect a rental return of four to five weeks, and in bad years it can be as low as one to two weeks. The reason is that, aided by a huge upsurge in low-cost travel linking regional France to most major population centres across Europe, many previous renters now own their French holiday home. If someone is looking to buy a property in France and if they need that property to generate substantial rental income then they must focus on the very best rental locations. Choose either Paris or head for the sunshine in the south of the country.
The regions that enjoy the longest holiday season are the Cote d’Azur and Languedoc-Rousillon, near the Spanish border. Tourist traffic in the latter is spotty. This is due to a lack of infrastructure, low population density, a general dearth of attractions, and scenery that tends to be uninspiring. On the plus side, the beaches near Perpingnan, Narbonne and Bezier are very good and property prices in the region, though far from cheap, are lower than in the Cote d’Azur. Due to the relatively low visitor numbers, the rental market is not robust.
The coast
As for the Cote d’Azur, it has excellent infrastructure with Nice airport – France’s second busiest airport after Charles de Gaulle – as well as efficient train links to all major local towns and cities beyond. It is a region brimming with activity for much of the year, spanning the full tourist season from April to October and encompassing Christmas, Mardi Gras, Fete du Citroen, etc. During the year it also experiences periods of ‘very high season’ for the duration of such events as the Monaco Grand Prix, the Cannes Film Festival and the Monaco Yacht Show. Its main cities are Nice, Cannes, Marseilles, Aix-en-Provence, and the region is dotted with attractive small towns such as St Paul de Vence, Beaulieu, Villefranche-sur-mer, Menton, St Tropez and many others. Most important for a would-be rental property owner: the many visitors – the easyjetset – generate solid rental yields.
The property buyer has a choice: “What is the trade-off between the type of property I wish to own and the type of property that will generate the best rental yield?”
Nice and the surrounds
The best yields are obtained from studio and one bedroom rental apartments in Nice city. Short holiday lets (one or two weeks) to foreigners generate annual yields of 5%-6% – or occasionally 7% depending on location and facilities provided. This form of renting entails more work, especially managing bookings and performing the regular cleaning and change-overs.
Long-term rents (three-year) to locals produce yields of 3%-4% for the same studio or one bedroom apartment in Nice. Very little work is involved for longterm rentals; just obtain a good tenant via a reputable real estate agent and keep things on an even keel.
Cities and towns outside of Nice are good too but their people throughput is not always as reliable. Menton is certainly worth a look.
The short-term letting option can, at first, seem quite daunting. However, for advertising and managing the bookings there is a very good French website that only costs about 150 euros flat fee per year: www.abritel.fr. As for organising the regular cleaning and change-overs, one can quite easily find a solution on a free local English language website covering all aspects of life in the Cote d’Azur: www.anglinfo.com. The short-term renting solution has a further advantage in that the property can be let to friends, family or reserved for one’s own use at any time during the year.
Depending on location, one may expect to purchase a modest studio or one bedroom apartment in Nice for 150,000-200,000 euros, or a decent one for 200,000-300,000 euros, or a very good apartment for upwards of that.
Slightly bigger apartments, eg two bedroom or larger, typically attract slightly lower yields. In essence the bigger the apartment the lower the yield. There is no magic formula for ascertaining the difference in all cases. Suffice it to say that the yield differential is not material for a two bedroom apartment but would be significant for a three or four bedroom. Most easyjetset travellers that require accommodation are one to two persons, whereas family group travellers might have their own home in the region and wouldn't require rental accommodation.
A good website is www.nice-properties.fr, listing a selection of properties in Nice and the surrounds. It is essential that anyone wishing to buy an apartment in Nice spends plenty of time walking the streets in order to find the type of place and location that suits their needs, desires and budget.
Gites
Considering buying a country gite for renting? Whilst one would only be expected to rent a gite to foreigners on a short-term basis, which maximises rental income, the likely annual yield would still be low – perhaps about 2% or 3% tops with a lot depending on the location of the property and the facilities provided like, for example, a swimming pool. A stumbling block may be the cost of buying a gite. In the Cote d’Azur one should expect to pay at least 500,000 euros for a relatively modest country house. There are areas of the country where purchase prices are much lower but the down-side is that rental yields would also be very low.
Taxes
Generally France is a low-tax country when it comes to property.
Capital Gains Tax: this is zero for EU citizens who dispose of their French holiday property after 15 years. The system is that you are taxed at 16% as a EU resident (or 33.3% for non-EU residents) of the taxable gains on property disposal during the first five years of ownership and then, in the subsequent 10 years, you get an additional deduction of 10% of the cost of the property per year – thus zero taxable gains after 15 years. Note: This applies to people owning one holiday home in France, it does not apply to people owning two. If a person owns more than one holiday home in France he/she is likely to be treated as a marchand du bien and consequently all profits on all French property sales are likely to be fully taxable. The message here is; do not put more than one French holiday property in one person’s name unless you have taken proper tax advice and you are fully prepared for the outcome.
Income Tax: As for rental income one can choose to be taxed a flat 28% of gross income without any further deductions – a lovely simple system - or one can go the whole hog of doing up detailed statements of incomes and expenditures and be taxed on the net profit. Once you opt for one system you cannot change. The 28% deemed net income is then taxed at the French rate of say 40% (for example only) giving a net tax of about 11% on the rental income which, after all, isn’t a huge amount. Of course France has a massive grey economy and many landlords do not declare all their income to begin with thus lowering their taxes further. This particularly occurs in the holiday let business where owners receive payment in cash and the rental income is largely untraceable. There are of course dangers and ethical considerations in tax evasion.
Useful links:
www.france.assetz.co.uk
www.frenchentree.com
brought to you by Wailea Makena Real Estate Inc.
www.wailea-makena-real-estate.com
Peter Gelsey R (PB)
Wailea Makena Real Estate, Inc.
direct (808) 357-4552
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