In 2002 it is expected that, in France, over 80,000 properties will have been sold to non-French buyers as investments in second homes, the highest number ever. Property is bought as an Investment, for retirement as well as for a change of life-style. The largest number of buyers (estimated 40,000) are from the UK, but buyers and investors from every country are looking at France to purchase a home, for retirement, vacation and investment. Many of these second homes are being offered to the short term rental market.

The Leaseback scheme was started by the French government over 20 years ago to encourage investment in properties for leisure and tourism. We have made a Leaseback Website to provide information about this very popular governement backed initiative.

In some regions, especially the south and south west, the growth of the realtor industry has mushroomed. In our own local town of Pezenas in the department of Herault, the number of real estate agents has jumped from 5 to 27 in five years and new ones appear regularly.

The reasons for this interest for investment in French property is not hard to find. Prices are still relatively low compared to most North European countries, the climate is superb and the quality of life is very high. Health, education, culture, history, tradition, food, safety and "the quality of life" are thought by many to be the best in the world.

This is not a new phenomenon, the British, Dutch, Germans and Scandinavians have been buying property in France for many years, but this has generally been a rather exclusive "club". However, with many other investments not performing as well as expected, pensions becoming devalued and the rapid rises in property prices in other countries, previously much faster than in France, a lot of capital and disposable income seems attracted to French property (plus you get sunshine and good wine). A whole industry has sprung up selling "investment" property to everyone. These are not now just second homes, many are people unable to afford a house in their own country who buy a property in France, not to live in full time, but to visit and rent out for most of the year (if possible).

One reason for the increase of interest in in investing in France is the Governemnt backed leaseback plans, giving investors tax relief on their purchases. You can get more information on this from our Real Estate and Investment Partners

In some areas prices have been rising significantly during the last three years. I have seen a number of properties near our village of Nizas (in Languedoc) more than double in price in this period. With the population in this region scheduled to double the increase in property prices is expected to continue.

But - this is most unlikely to apply to all property everywhere. France is a large country, in many ways it is 95 different countries, each of the 95 departments has an individual character and in reality there are about 20 departments which are attractive for foreign investment or residence. Of these 20 "viable" departments over 80% of present investment is in no more than 4 of them.

Taking this a little further, Paris (Ile-de-France) consists of 8 departments, but in reality only one (75 - Ville de Paris) is suitable for short term letting. In this department there are 20 arrondissments and only 10 at the most are considered "good" rental areas (some say only 4).
In all property investment location is the most important consideration.

Many factors must be considered for an investment property. Obviously the bottom line should be the return on investment. Capital appreciation is subject to capital gains tax, there is also a government tax and other costs which will reduce a gain. The income from rentals has been very good, in the last 20 years many people have paid for their property with the income from summer rentals. This is likely to change as the number of properties increases and the demands and expectations of the renters is higher. Supply and demand suggest to us that many rental prices will be reduced for next year, some by 50% or more. Another important factor is the tightening of laws and controls on rentals.
The rental of private property for seasonal rentals (less than 93 days a year) is already regulated and from 2003 there will be a strict "policing" of rentals by trade associations and local taxation authorities. I have written a little more on this in an article at...
http://francevoila.com/features/rentals_law.html

So, as the rentals business becomes more competitive it will become increasingly necessary for an investor to use professional services to generate revenue. Until this year is was simple to rent any property in a "good" area through a few adverts or a magazine. Competition is growing, on Internet there are thousands of sites offering to rent your vacation home for you. But the simple logic of supply and demand suggests that with a 2% growth in tourism and a 500% growth in rental property, many weeks will not be rented. This is certainly our observation this year.

At RentalsFrance we are well established in this business and we are adding a wide range of services to assist owners to achieve viable rentals - I outline some of these services on this page...

http://francevoila.com/features/rentals_services.html

The Internet is already responsible for over 30% of all travel and vacation reservations (source American Express 2002), this is from 5% in 2000 and 18% in 2001.

Our aim is to offer efficient and economical services to owners and the best value service to renters to select and book accommodation in France (and Italy).

For real estate investment in France there are many other considerations apart from finding clients. Attractive central Paris properties were mostly built in the 18th century (or earlier) and the cost of alterations and improvements is much higher than a modern brick or block construction. In the south of France traditional properties are of stone and we have found the cost of renovation is at least 5 times that of constructing from new. With the current property boom finding labour is very difficult, many builders and tradesmen refuse any new clients, most others have a waiting list of over 6 months. The "tradesmen" who are available are usually the illegal non-registered "cowboys" who have no insurance, if you employ them it is strictly against the law and you are taking a risk, plus all work cannot be set against any capital gains taxation or expenses. We have also seen disasters where poor work has reduced the value of a property after a large investment by an owner.

The main concern for investment is the net yield. Two years ago I was able to calculate this for properties in Languedoc for clients renting seasonal properties. Their investment gave them a return of 12% after rental charges and commission, they then sold properties with a capital gain of up to 50% in 3 years. However, prices are changing very fast at present and with the large amount of rental property coming onto the market, plus some uncertainty about travel from the USA next year, I cannot make any qualified projections.

In some areas property prices are likely to continue to rise for at least 5 years due to the existing dynamics of a planned expansion of population and communications. With the rapid growth of the available rental property I do not expect rental charges to increase, in fact I anticipate a fall in rental costs, plus owners must give a better service and more facilities for the same income, also having to pay more for advertising and management to get the same level of rentals.

As an educated "guess" I would expect the property I know well in Herault (34) to increase in value by an average of 15% per annum and the potential rental income for seasonal rentals to average 5%, of the current investment value, over the next three years. This implies the return on investment on the property value in 3 years will be under 4% per annum.

I am only concerned here with short term or seasonal rentals. Any rental period over 6 months has many legal implications and controls and is not normally the subject of this kind of investment.

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