Buy-to-let property in France

Over 40% of French people live in rented accommodation, providing investors with a ready market – holiday rentals are popular too

As with all types of French property purchases, buying to let need not be a gamble, provided you do your research and match your offer to the needs of the market. Your success will depend on what kind of property you buy, where it is located and its suitability for renting. But armed with a bit of insider knowledge, you too can make money from your French property investment.

The rental market

Just over 40% of French people choose to live in rented property. This is in addition to temporary, short-term (such as students) and holiday rentals, and a higher percentage than in, for example, Spain where the level of home ownership is above 80%, and in Britain at 70%. Recent price rises in most European countries, however, have forced younger people to stay at home longer, often up to age 30 and beyond, before they can contemplate buying or renting a home of their own.

France’s new president, Nicolas Sarkozy, has vowed to create a nation of homeowners, but this will take time. And, as I described in a recent article, a number of government schemes to attract buy-to-let investors through tax savings have largely failed, as too many unsuitable properties were built that have been unable to find tenants, even at the controlled rents proposed under these schemes.

As a result many singles, and even couples with one or more children, are paying €1,200 or more average monthly rental in Paris and €800 elsewhere, for apartments of only 25-30m2. Apartments make up over 80% of the French rental market.

Such apartments are generally in older buildings, close to city centres, sometimes modernised and commanding higher rentals, while new-builds are largely to be found in the suburbs and satellite towns where land is cheaper and the infrastructure of roads and services is still under development. However, recent fuel price rises have forced many would-be renters (and purchasers) to revise their plans to move out of a town centre and instead stay where they are, often in overcrowded and unsuitable accommodation.

Finding your niche

Despite all this, the French rental market is extremely competitive (the right apartment can be let in one day) and can offer good returns for investors, sometimes renters themselves, seeking long-term security and possibly somewhere for themselves to live in retirement.

Buying an investment property is much like any other property purchase and needs to be approached with care – and, of course, an eye on the rental market you are planning to address. Be as selective as you would be in choosing your own home. If you would hate to live in a certain property or a particular area, why should anyone else choose to rent off you? This means doing your research, thoroughly, on the ground – even in the case of new-builds and off-plan, where an amazing 75% of buyers do not even bother to visit the site before committing to purchase!

New or old?

As already noted, the majority of new-builds will be out of town centres, but offer the advantages of modern construction methods and materials, and hence better sound and heat insulation, electrical and gas installations that conform to the latest regulations, and generally require no major maintenance for 12 to 15 years.

These benefits can be found in some newly renovated, older buildings, but come at a higher cost. Grants and soft loans are sometimes available to bring such buildings up to standard, and it may be advantageous to buy a large, older building containing several apartments, and do them up, to obtain the maximum amount of aid.

House or apartment?

Surprising perhaps for some readers, but the right kind of house can provide the safest investment. Representing just over 18% of the rental market, the most sought after are houses offering around 100m2 of living space, three bedrooms, a garage and a garden. Proximity to schools, shops and public transport are additional requirements for these renters, who are typically youngish families with two or three children, a working father and full-time stay-at-home mother, possibly with a parttime job locally.

Tenancies will normally be unfurnished and long-term (three, six or nine years or longer) and rentals secure – families are unlikely to leave in a hurry without paying. The persquare- metre cost of buying a house is less than that of an apartment, although renovation and maintenance charges fall entirely on the owner.

Some 75% of rental apartments are located within a co-ownership building or complex, and subject to service and maintenance charges. Even in Paris, a tiny studio can still be bought for around €100,000, while this amount will secure a studio or two-room apartment (25-30m2) outside the capital.

Rentals can be proportionately higher than for larger properties, and represent 60% of the market. However, turnover is likely to be higher as young, single tenants tend to move out at short notice to somewhere better or cheaper, or may decide to move in with friends. Student accommodation is subject to long vacant periods during academic holidays but rental income could be supplemented by seasonal lettings. In all cases, maintenance and wear and tear will be higher, with a constant need for repainting and refreshing between tenancies. Larger apartments represent just 12% of the rental market and can command a premium if you can attract high quality tenants – executives on temporary placement, foreign embassy staff, public officials obliged to live near their work and families wishing to stay in the town centre. The latter frequently own or have inherited the traditional maison de campagne to which they escape for weekends and holidays. Note that France has three million second homes, representing 10% of the country’s overall housing stock, so this is a popular option.

Furnished or unfurnished? Furnished studios and small apartments are attractive to younger tenants, though they represent only a tiny proportion (around 5%) of the rental market, aside from holiday and seasonal lettings. Rentals can be 30% or more than for the same property unfurnished.

Recent legislation now requires a minimum 12-month rental agreement, even for furnished properties regarded as the tenant’s principal home. Although the tenant can give notice and leave at any time, the owner must offer a minimum three months’ notice to quit, otherwise the lease is automatically renewable. Unfurnished properties are let on longer-term leases of three, six and nine years, with considerable protection for the tenant, even in the event of non-payment of rent or other problems.

Seasonal or holiday lettings, such as those in winter skiing or summer coastal resorts, are recognised as being different under French legislation and apartments and villas are, of course, rented furnished, at highly inflated prices, for periods of a few days or a few months.

The French 35-hour week has potentially enabled more holidays to be taken, but general price inflation has started cutting into holiday expenditure. Some gîtes have reported lower occupancy rates, but elsewhere, such as on the Mediterranean coast, bookings are close to normal for holiday apartments. The traditional summer holiday season is, however, short – six to eight weeks at most – though this can be extended in specialinterest locations.

Whether furnished or unfurnished, it is wise to invest in up-to-date, high quality equipment and furnishings. Tiled or wood floors are preferable to carpets, and kitchen and bathroom furnishings should be durable: you can expect an average life of seven to 10 years with normal wear and tear before they need to be renewed. Decoration and furnishing should avoid extremes of personal taste and ideally appeal to the majority of renters who are likely to be young rather than older.

Finding a tenant

Your first task once you have bought and equipped your rental property is to find a suitable tenant as quickly as possible. You can, of course, buy a property that is already let, possibly at a discount of 10% below the price for the same property untenanted. An unscrupulous owner may wish to offload a property with a difficult tenant, who can nonetheless be highly protected by the law, but hopefully you will inherit a good rental history and a reasonably secure income.

You can find tenants either through agencies specialising in rentals, through advertising and/or word of mouth. To ensure you have found a ‘good’ tenant, it is normal for the potential renter to provide a comprehensive dossier demonstrating their suitability. This file can include copies of salary slips, employment contract, previous rental agreement, utility bills including insurance, references, bank account details (you cannot ask for bank statements, however) and possibly details of a guarantor in the case of a student or person who does not have a permanent, full-time job. In a competitive market, landlords can be highly selective about which candidates they choose as tenants.

The lease or rental agreement should ideally be drawn up by a notaire and be as explicit as possible regarding the terms and conditions of the rental. Obvious things to include are the amount of rent payable, security deposit (one month only allowed), additional charges payable, utilities, start and finish dates, periods of notice, responsibility for maintenance and damage, insurance, provisions for rent increases and specific regulations such sub-letting, sharing, pets, noise, carrying on a business activity etc.

Landlord’s liability

Within a co-ownership building, certain costs will remain the responsibility of the owner. These generally include buildings insurance and the cost of longterm projects associated with the building such as external painting or maintenance of common parts. The tenant pays for items involving ‘usage’ (heat, light, cable TV etc).

There are restrictions on the owner’s right to enter the premises once let, to visit the tenant without giving reasonable notice, to harass the tenant in any way, or to secure their eviction, even in the case of nonpayment of the rent.

Even when the owner wishes to legally terminate the tenancy, at least six months’ notice must be given, otherwise the lease will be renewable. The owner must either wish to reside there himself or lodge a close family member; wish to sell the property (after first offering it to the tenant at a fair price); or need to sell for ‘legitimate and serious reasons’ such as persistent non-payment of the rent, breach of clauses in the lease, or the need to undertake major works.

Managing the property

Managing even a single rental property can be a burdensome occupation, especially if the owner doesn’t live close by (for emergencies, running repairs etc) or fails to respect the reasonable requirements of the tenant (quality of furnishings, maintenance etc).

These can lead to a high turnover of tenants and weeks or months without rental income. But given a careful choice of tenants and reasonable goodwill on both sides, being a landlord can be a relatively secure, longterm investment. Rentals will not cover all the mortgage repayments, but can help you to acquire a second, third or fourth property that you can eventually re-sell or occupy yourself at a later stage in your life.

Peter-Danton de Rouffignac MA LLM is a property advisor and consultant.

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