Introduction
The Property Investor Magazine and website at www.thepropertyinvestor.net is the UK's leading residential property investment publication for French Property Features. France is the most popular tourist destination in the world and welcomes an estimated 75 million foreign visitors annually. Low cost airlines and high-speed trains have made France more accessible than ever to its European neighbours. What's more, the French have a deep-rooted predilection for holidaying in their own country. All of these factors contribute to the huge demand in France for rented holiday accommodation year after year.
Crossing the Channel
An estimated 600,000 Brits have so far crossed the Channel and fallen for the charms of French property and the trend shows few signs of slacking. The popular perception is of adventurous individuals in pursuit of abandoned cottages and farmhouses in remote locations going at a snip, doing them up and living the French idyll.
Some property investors may well be put off by all of this, believing that the French market has become overcrowded and swamped with foreign buyers and that prime opportunities for generating income are few and far between as the so-called 'colonising phenomenon' has gathered pace.
However, a specific focus on the buy-to-let segment for new apartments and villas reveals a wide degree of choice open to investors in terms of price bracket, location and investment options.
Property price trends/capital growth
According to France's estate agents federation (FNAIM), global French property prices have doubled since 1997. Last year prices rose by just over 15 percent on average but there were fewer sales transactions than in the two preceding years.
Forecasts for 2005 are for a rise of 10 percent in prices and market analysts, while tending towards the view that we are now beginning to see a slowdown as peak levels are reached, appear to have ruled out any prospect of a downturn, even minor, in the foreseeable future. This will give few pointers as to whether now is the opportune time to invest in property in France. What is clear is that the French market is currently riding on the crest of a wave as far as prices are concerned and that any significant change in the situation is probably some way off.
But-to-let: what's on offer ?
There follows a snapshot selection of new-build 25-50 unit apartment block projects currently on the market and which reflect the geographical diversity and range of prices on offer.
CABOURG (Normandy) - Located in proximity to the chic coastal resorts of Deauville Trouville and Honfleur. Handily situated for British owners and tourists but the region's climate is very similar to the UK's. 2-4 room apartments from 212,000-303,500€.
PERROS GUIREC (Northern Brittany) - Close to beaches and in a rugged and relatively remote location. The climate is often changeable but is part of the region's charm. Studio-3 room apartments, some with own garden, from 79,000-140,000€.
CANNES (French Riviera) - Near beaches and at the heart of a region which enjoys 300 days of sunshine a year, 2-4 room apartments from 270,000€ 516,000€.
MARSEILLE - France's second largest city remains of the most moderately-priced locations on France's south-east Med coast. In an historic quarter of the city, 2-4 room apartments from 136,000-272,000€.
TOULOUSE - Built on a former barracks in period-style architecture, city centre development comprising , 2-5 room apartments from 115,000-355,000€.
PARIS, located in the 12th arrondissement, on the edge of the Bois du Boulogne. Studio-4 room apartments from 227,000-652,000€.
ANNEMASSE (Haute Savoie) - Located near Geneva,with the Alps highest peak, Mont Blanc, in the background. 4-5 room apartments from 304,000-353,000€.
Investment options
There are two main property investment options available to investors - 'leaseback' or traditional 'buy-to-rent' and each has its advantages and drawbacks which need to be weighed up very carefully.
France's 'redence de tourisme' or leaseback scheme dates back over 20 years and was introduced to encourage private investment in high quality tourist accommodation which at the time was perceived to be in short supply.
Investors buying a leaseback property, usually an apartment in a new-build development, undertake to lease it to a management company for a period of 9-11 years in return for which the company provides the owner with a guaranteed rental income. The development functions as a hotel with the management company renting out the apartments to tourists on a short-term basis.
The combination of a virtually guaranteed return and no liability for running costs is one of the main pluses of the 'leaseback'. There is also the incentive that leaseback properties are exempt from VAT and given that it is levied at 19.6% in France this represents a considerable discount on the purchase price.
Many French leaseback schemes suit long term investors whose main aim is to own a holiday home to use for a few weeks a year while enjoying regular income to help pay off the mortgage. However there are many examples of schemes which make no provision for personal use at all and are therefore pure investments. Where personal use is possible it sometimes reduces rental incomes to such a degree as to be prohibitive.
'Leasebacks' can offer annual rental yields of 4 to 6% the purchase price and these are normally usually index-linked so your rent will increase as property prices rise.
The main alternative to leaseback is purchasing an apartment in the standard way. This allows you to buy where you want not just where there are leaseback programmes and also to choose the size and type of property which suits you best.
While a leaseback will allow you, at most, 4 weeks per year and more than likely during the 'low' season, your own apartment, rented out during the main 'tourist' calendar would allow between 10-20 weeks of personal use while offering scope to generate as much if not more rental income.
So-called 'ordinary' apartments have the potential to 'outperform' the return on leasebacks and can offer annual net rental yields of between 6 and 7.5%. This can be explained to some extent by the fact that leasebacks tend to be relatively expensive when compared with 'ordinary' apartments located in the same area due to the hotel-type facilities and services they are obliged to provide as part of the rental package.
The principal drawback with the classic buy-to-let option is that rental income is not guaranteed as with a leaseback property.