Invest in property rather than sell

In this uncertain market, understandably many homeowners are becoming concerned about the value of their property. For most of us, buying a house is the biggest investment we will ever make so, although the British are often derided for their obsession with homeownership and property prices, it is only logical that we also want to maximise the potential return on our hardwon asset.

Are French consumers simply less gullible and is any money spent on improving your home wasted? In other words, how wise is it to invest in improving your French property in the current market? With resale prices now open to negotiation, should you stay put and make the best of what you have now and wait it out? Or, with the whole market more open to negotiations on price than ever before, should you scrap the idea of a renovation project and instead take advantage of crumbling confidence by bagging yourself a house you couldn’t have dreamt of buying this time last year, avoiding all the mess and stress of renovating a property to boot?

In the current climate, we will all need to take a much more considered approach to improving our homes.

Research your market

Whatever your plans, the first step is the most crucial: research. And that primarily involves establishing the market for your property. That is, the potential buyers that you could attract were you to put your house up for sale. The best way to go about this is to discuss your plans with your local estate agent. Ask them who they would expect to be interested in your home. The location, size and state of repair of your property could significantly affect the potential buyers you will attract. You are unlikely, for example, to appeal to the young professional market if your house is in the middle of nowhere. Equally retirees aren’t going to flock to an apartment on the seventh floor bang opposite the hottest nightclub in town. Factors such as local schools and amenities, transport links and climate will all contribute.

Budget

Which brings us onto the second most important aspect of any home improvements: money. The simple cost of renovations is by no means the only consideration that any amateur developer needs to take into account. The first issue to consider is the ceiling price for houses in your area, that is the highest price that a similar property has sold for in the local vicinity. While installing a state of the art sound system and high spec bathroom and kitchen may make sense in affluent areas such as the Côte d’Azur, it’s unlikely that you will recoup the outlay in more rural areas. The ceiling price is difficult to beat in the most buoyant market, so it would be unwise in the extreme to attempt to surpass it now. This barrier will effectively cap your budget at the difference between the ceiling price and the price you paid for your property. Any money invested in improving your property over and above this figure will likely be wasted – and the cautious investor should aim to keep expenditure well below the ceiling price.

Capital gains tax

For anyone who has ever wondered why France is so far behind in the property developing stakes, you need look no further than the taxes, fees and paperwork involved in any renovation project. The first and most pernicious of these is capital gains tax. Capital gains tax is due on any profit made on the resale of a second home in France if it is sold within a 15- year period. In order to qualify as a permanent residence, the property must have been occupied since purchase, or for at least five years. Capital gains tax (CGT) is charged at 27% for residents, 16% for non-resident EU citizens, and 33.3% for non-resident, non- EU citizens, on properties sold within five years of ownership. For every year you own a property beyond the five year threshold, you are entitled to a further 10% reduction in CGT. Any property owned for more than 15 years is exempt from CGT entirely.

Value added tax
Value added tax (VAT), which is abbreviated to TVA in French, is due at a rate of 19.6% on all labour and materials in France. However, until 2010, VAT on renovation work undertaken by registered tradesmen on properties aged over two years old will be due at a reduced rate of 5.5%, although the exact parameters of this exemption can vary from department to department, so it’s worth double checking the particular rules in your area.
Taxes d’urbanisme. If your renovation plans include the creation of extra living space, you may be liable to pay supplementary taxes d’urbanisme.
Taxe foncière and taxe d’habitation. These property taxes are similar to our council tax and are calculated on the property’s notional rental value.

Other costs to be aware of:
• Wealth tax
• Architect’s fees
• Listed buildings

Grants
Grants vary from commune to commune, and should be investigated at a local level, but as a general guide the following are available. • Prime pour amélioration de l’habitat (www.anah.fr): Available for improvements to permanent homes, over 20 years old, provided your family income is below a certain level. • Subventions pour l’amélioration des logements privés (www.anah.fr): Available for longterm rental properties. • Gîtes de France (www.gites-defrance.fr): Grants to set up gîtes available in certain areas. • Historic buildings and town houses: Check with the Architect Conseil des Bâtiments de France (www.archi.fr) and Habitat et Developpement (www.habitatdeveloppement.tm.fr).

Planning permission
Failure to obtain planning permission can result in the demolition of any works, a hefty fine, or even in the worst case scenario, demolition of the entire building. Most renovation projects will require planning permission, including demolition! To find out in the first instance whether you need planning permission or not, you should ask for the service d’urbanisme at your local mairie. This service (which may well be run by the mayor in small villages), will liaise with the Direction Departementale de l’Equipment on your behalf. As a general rule, a building permit, or permis de construire, will be required for any alterations that will affect your property’s taxable value.

Choosing a builder and getting an estimate
The golden rule is that you should only employ registered tradesmen. Registered tradesmen hold a number of advantages over their unregistered counterparts, including the fact that their work will be insured and guaranteed, their estimates legally binding, their fees redeemable against VAT and CGT costs and you will be eligible to apply for relevant grants to recoup part of the cost. It’s worth pointing out that not all registered builders are French, and if your language skills are somewhat lacking, you may find it easier to seek an English builder who is accredited in France. Always ask to see projects that they have worked on in the past and speak to their former employers to establish whether they were satisfied with the work.

---