Investors seeking profits in French real estate can often find it in rentals, rehabs and high-end properties. France offers a wide array of investment opportunities which vary greatly by location, from scenic countryside villas and homes in Provence, Languedoc and Bordeaux to luxury apartments in Paris to ski chalets in the Alps and Pyrenees to apartments and villas along the Atlantic coast and the French Riviera.
High-end demand
The high-end market has strong demand in France, particularly in the most desirable areas, such as Paris and the Cote d’Azur, Cecil Jones, president of Just France Sales, said. That demand will only increase as more Russian, Chinese and Indian buyers continue to enter the market, he said.
In addition, “there’s going to be an increasing demand in Paris for apartments in…the second-tier locations because there is just a finite number of good apartments in those parts of Paris that are increasingly in demand, and there’s a gentrification process going on in Paris that’s going to expand…the number of good apartments,” Jones said.
Jones said he believes the trend toward finished high-quality real estate products, as opposed to less expensive homes that lack character, will continue, while older properties with “good bones” but that need work in Paris and the countryside will be increasingly in demand “because there’s only a finite number of good finished properties.”
On the other hand, Jones said he expects to see a decline in the market for low-end properties, whether in cities or countryside. “I think there’s going to be a decline in that market, except among British buyers who buy in southwest France and Brittany, who see an easy way to get into the French market at low cost.”
Buy-to-let
Another successful investment strategy entails calculating the amount a property can rent for on a weekly basis and realistically determining how many weeks it will rent per year, Jimenes Bruno of Nice Properties, and author of AboutFrenchRiviera.com, said. The rest of the time, the investor can enjoy personal use of the property. This allows investors to cover their expenses and benefit from capital growth, he said.
The best investment today and into the future will be the classic buy-to-let investment, Bruno said.
Buying properties to use as rentals is particularly successful in the better sectors such as Paris, the Mediterranean, Provence and the Alps, Jones said. “I think…the French vacation rental market right now is unsurpassed by any other country.”
Weekly rental income on top-end apartments in buildings with elevators in the most sought-after neighborhoods of Paris can range from $1,950 to $2,350 for a one-bedroom, $2,800 to $3,800 for a two-bedroom and $3,800 to $6,000 for a three-bedroom apartment, Jones said. (As of Sept. 18, 2007, €1 was equal to $1.3984 U.S.)
In Provence, top-end vacation rental homes with swimming pools would rent for $3,200 to $5,500 for a three-bedroom, $3,600 to $7,000 for a four-bedroom, $5,000 to $10,500 for a five-bedroom and up to $25,000 for homes with even more bedrooms, Jones said.
Rehabbing
Demand for finished properties means opportunities exist for investors who are willing to rehab and then rent or sell properties, Jones said. However, investors considering selling a property after holding it for only a few years will want to make sure this will make sense for them given France’s high transfer fees of 7 or 7.5 percent, 19.6 percent VAT on new construction and 33.3 percent capital gains taxes for non-E.U. residents.
Still, investors who rehab can sell or rent their rehabbed properties for a premium that can make it worthwhile. The most successful investment strategy in France has been “the buyer who acquires a run-down property in a prime location that can be bought cheaply, renovated and then resold or rented,” Jones said.
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Investors who rehab and then rent their properties as high-end short-term rentals can also benefit from the ability to personally occupy the property, Jones said.
“The same is true in the provinces. You find an old run-down farmhouse that’s in a great location, set up on a hill, it’s got a good long-range view, good land around it, the land around it can’t be built on because it’s vineyards or it’s farmland,” Jones said. “You buy it, you spend two years renovating it, you turn it into a beautiful property, and you sell it or you rent it and sell it in a few years, and that too can be a very handsome investment.”
“I think that the type of investment that’s going to be most successful is the person who acquires a good property, a property with good bones, cheap, renovates it, and holds on to it for 10 years, and thereby takes advantage of both the rental income and the appreciation,” he said.
Construction
“It’s very, very hard to find constructable land in rural France, especially in Provence, Cote d’Azur…and the parcels are very expensive. It’s very hard to find land on which you can get permission from the local authorities to build,” but those who do find constructable property and build on it can realize a substantial return, Jones said.
Construction costs to remodel a good quality house or flat would be between €1,000 and €1,200 per square meter, Bruno said. A greater supply of homes to remodel is currently available because many investors have already bought and remodeled many of the flats, he said.
Prices per square meter on construction vary greatly depending on the location, Jones said. “There’s a big difference between Paris and the countryside.”
Jones said construction in the provinces can be approximately €2,000 per square meter, while Paris can be €6,000 to €10,000 per square meter. Those costs may seem high, “but when you’re done, you’re going to have a very beautiful, a very saleable, very rentable product,” he said.
Property prices
An investor could expect to find a small studio of 20 square meters in a good location for as little as €120,000 to €130,000, Bruno said.
Prices can vary widely even from street to street, Bruno said. “You can buy a flat in this street that is going to cost you €6,000 per sq meter and you just go one street above and it’s going to cost you €10,000 per square meter. It’s all about location.”
In Paris or the French Riviera, the cheapest price per square meter that can be expected is €5,000, but in some places it can be as high as €17,000 per square meter, “which is absolutely crazy,” Bruno said.
“To buy something for €100,000 over here, those opportunities are very, very rare because they are not in areas…where there’s a high demand,” Jones said.
Jones said that the kinds of properties with which he is familiar usually cost at least €500,000 or €600,000.
Investors may be able to find a farmhouse-type property in the southwest for €250,000 or €300,000 that they could fix up themselves and increase its value so that it can be rented or sold, Jones said.
Areas of opportunity
Areas in greatest demand include Paris, the Alps and the Cote d’Azur.
“For the lucky buyer who can get in, there’s nothing like Paris….It just keeps going up every year, a steady stream of buyers,” Jones said. “People from other countries, when they first start investing in France, they first look to Paris.”
Paris is where most of the real estate energy is concentrated, but prices are high and steadily climbing, while good products are few and far between, Jones said. “There’s far more demand than there is supply in Paris….We have a line of buyers who can’t wait to buy, and who have money to do it, good apartments in Paris, but the availability of the kind of apartments they’re looking for in the better neighborhoods, it’s very, very rare.”
The Cote d’Azur on the Mediterranean is another sound investment market because of “the constant attraction, the magic that the Cote d’Azur has had for…a century now, starting with the Russians and the English back in the early 1900s,” Jones said. “I think that’s a…solid area to get into. Again, it’s expensive.”
Paris and the French Riviera are the best places to invest because of the high capital growth rates, Bruno said. Five years ago, a studio with a sea view on the French Riviera could be found for €60,000 or €70,000, but today such properties cost €130,000 or €140,000, he said. “The problem is that we have more customers than product on the market.”
The Alps are the classic ski resort area, with higher property prices and rental rates, while the Pyrenees offer a more affordable alternative for investors and vacationers, Stephen Cheesebrough, managing director with French Property Investment, said.
Provence is another area with demand from foreign buyers, Jones said. “I happen to think Provence is a solid investment, where I have my property.”
In addition, Brittany is a good place to invest because it offers bargains and is growing quickly, Bruno said.
Farmlands in southwest France in general have more affordable prices and a high demand from British buyers and vacationers, so property values there are buoyant, Jones said.
Yield rates are higher for properties that rent year-round, rather than just seasonal tourist resorts, Cheesebrough said. The Cote d’Azur is a summer season destination, while the ski areas in the Alps and Pyrenees have their peak seasons in winter and some occupation in summer, he said.
“So the highest yields are in the city resorts, in Paris, in Montpelier, in Toulouse, in Lyons, that’s where we have higher yields, where we’ve got properties that are being occupied throughout the year,” Cheesebrough said.
Areas with a strong future outlook for long-term appreciation include Toulouse, Montpelier and Bordeaux, Cheesebrough said. “They’re cities in the south that have a lot of business activity.”
In Bordeaux, the wine industry has decreased in the last five years, so the city is seeking to establish itself as a major commercial center, Cheesebrough said. “So there’s a number of service industries that are based in Bordeaux and consequently there’s demand for good quality accommodation.”
Markets to avoid include “deeply rural France, where there’s not a lot of activity by foreigners,” Jones said. “The areas sought after by foreigners…are Paris, the Cote d’Azur, Provence, or in rural France, the areas that are best served by high-speed public transportation like the TGV or the auto route system.”
