It's a great time to buy in Paris...'bonne chance!'
A beautiful city with low interest rates is tempting, but do look before you leap, warns Chiara Cavaglieri
Sunday 25 April 2010
Paris is not a hard sell. It is one of the world's most popular tourist destinations, a hub for international travel and has a cultural heritage to die for. From its Hausmann-designed avenues to the Eiffel Tower, Paris is truly a great world city.
It's only a few hours from London and the south of England, so Paris has great potential for those looking for a home away from home, as well as a bit of Gallic culture and perhaps, ultimately, to turn a bit of a property profit.
"The best reason to buy in Paris now is that prices are going up. There is demand from all over the world," says Stuart Baldock, a director of Property Vision France.
Figures from FNAIM (Fédération nationale de l'immobilier) show that property prices in major French cities have fallen in the past two years. But there are large differences between areas, and strict mortgage lending and stable demand has meant the French property market has fared well against its UK counterpart. Average values have fallen by just 7 per cent since the market peak, against a drop of about 25 per cent in prime central London.
Location is the key, both in terms of setting a budget and potential rental income. Paris is divided into 20 arrondissements (boroughs), each with its own personality and price tag.
"Prices vary from around €€4,000-€5,000 per square metre in the 19th arrondissement, to €€10,000 per square metre and above in prestigious locations such as the 4th and 6th arrondissements," says Karen Tait, editor of French Property News.
But, like London, top-quality, well-located apartments are in short supply. As with most property decisions, choosing a home in Paris will largely depend on lifestyle choices. "If you want the 'grand salon' feel you will have to forgo outside space, and if you can live with a loft type of apartment then you will more likely benefit from a terrace and a good view," says Mr Baldock.
Property Vision's pick for a bargain in Paris is the southern boundary of the 4th, where prices are under €€10,000 per square meter, compared with the €25,000 per square meter you could pay in Avenue Montaigne – part of the city's so-called Golden Triangle, which also includes the Avenue Champs-Elysées and Avenue George V. A happy compromise might be the area of St Germaine, popular for its bohemian art galleries, where prices are around€€17,000 per square meter.
The once cheerless 11th and 12th arrondissements have also been given something of makeover. "The Bois de Vincennes, one of the most beautiful parks in Paris, is located in the 12th, and the 11th offers fine restaurants," says Andrew Hawkins, the head of international at Chesterton Humberts.
Spending some time in the city is by far the easiest way to get an idea of the area and type of property you want and there are countless websites dedicated to overseas property, but if you use French estate agents ensure that they are members of either the trade body FNAIM or SNPI.
When it comes to finance, French banks will lend to international buyers: "The interest rates are good – from under 2.5 per cent on variable options – and loan to value of 80 per cent is standard, but if you need to raise finance, make sure you qualify for a mortgage before you start house-hunting," says Miranda John, international manager at Savills Private Finance.
Many potential buyers looking for a French holiday home have been stalling in the hope that sterling would bounce back, but many now are considering short-term euro mortgages instead. "This allows them to buy at a time when property value is low; minimise their exchange rate exposure by only converting say 20 to 30 per cent of the purchase price, and borrow on historically low interest rates," says Ms John.
If you're planning to rent out the property there are a few stiff warnings. Unlike the British buy-to-let model, French lenders will not allow you to borrow based on potential rental income. They apply strict criteria and lend on affordability, so around one third of your income should be used to cover the costs of any existing loans as well as the new French mortgage.
And watch out for new rules on illegal subletting. Anyone letting their second homes without official permission could face hefty fines or even a criminal record. If you plan to let your French property, even for a few days, you must register for permission. The sticking point is that stringent rules mean you may have to cough up for affordable housing for locals too, which could put an end to your Parisian fantasy.
The buying process in France is relatively straightforward, but there are a few key differences to the UK. The most notable of these is that a government official, or notaire, must oversee the sale and purchase of any property. They will also prepare the initial contract, the compromis de vente, which sets out the details of the purchase.
Once this is signed by both parties you must lay down a 10 per cent deposit. Under French law, you have a cooling-off period of seven days to change your mind, so this is a good time to get a structural survey and carry out all necessary checks on the property.
The final stage sees the acte authentique de vente signed at the notaire's office, at which point you pay any taxes and fees. Prepare for notaire fees of between 6 and 8 per cent of the property value (or between 2 and 4 per cent plus VAT for a new-build); stamp duty at 0.6 per cent for a property less than five years old, and 6 per cent otherwise; then 16 per cent capital gains tax if you sell within two years.
"There are relatively high purchase costs, therefore it should be considered a long-term investment," says Ms John.
Andrew Hawkins, Chesterton Humberts
"Demand has remained high among UK buyers this year for property in Paris despite the weakness of the pound. They are typically looking for centrally located pieds-à-terre within a period building, with some original features, such a parquet flooring or ornate cornicing."
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