Ecrit par : Avocats Picovschi
French real estate market, especially the luxury market, is very appealing since France is offering a large historical and architectural heritage. Besides, Brexit has created an uncertain situation for British market, leading to new promising possibilities for French real estate. The New York Times interviewed us on this matter, giving us the opportunity to explain some basics about real estate law in France. Avocats Picovschi gives you his analysis.
- Are there any restrictions on foreign investors wishing to purchase in France?
In 2015, approximately 75 000 real estate transactions in France were about non-resident alien, namely people who do not have tax residence in France. In contrary to the situation in other countries, there is no legal restrictions on foreign people purchasing property in France. Knowing that it is the law of the location of the property that applies to real estate, the French law will therefore be necessary. Thus, foreigners are able to purchase without nationality or residence requirements. However, some differences can exist concerning tax system that applied to the purchase. That’s why it is recommended to be advised by a lawyer who will help you to understand the tax dimension and to optimize it.
- May Brexit have an impact on French property market?
Brexit may have direct economic consequences on the French property market since the decline of the British currency is foreseen. It was already -9% a week after the vote. Thus, we can predict a decline in purchasing power and therefore a decrease in demand of British people who want to buy in France. But we note that British are the largest foreign investors just before Italians. Nevertheless, realtors are currently seeing a growing demand of the British on the French property market which leads to higher prices. This demand could be explained by the need to invest in safe assets and therefore in French real estate which is relatively stable and offers an attractive luxury market. Thus, if the situation persists, France and more specifically Paris could become the most attractive European country for foreign investors.
- Are there any specificities related to the purchase of home or historic property in France?
The first thing to consider when buying a property located in France is that French law applies even if the buyer is foreign. Indeed, the law of the place where the property is located applies in real estate law. However, there are special provisions for EU nationals or nationals of a State that had signed agreements with France.
With a financing point of view, bank transfers required for the purchase will be subject to a thorough examination to ensure that they do not constitute money laundering.
Finally, the main difficulty is about taxation as real estates are subject to taxes, fees and charges. The French tax system describes specific rules from holding the property, and also in case of subsequent resale. For example, there is special legislation regarding calculation of the real estate gain.
In tax field, it is often advisable to call an advisor to secure investment. It is also mandatory, except in cases of automatic exemption, for all residents outside the EU territory to resort an accredited representative.
Moreover, regarding historical properties, there are certain obligations depending on cases like opening for public visits. Also, the French Tax Code provides favorable rules in the event of renovation works in the property. Legal advices are recommended when drafting the purchase agreement.
- What are the fees and taxes required to purchase a house in France?
Firstly, in principle, fees are the sole responsibility of the purchaser. At the time of purchase, the purchaser usually has only notary fees. These include remuneration of the notary, registration fees, costs of formality and publication, disbursements and taxes that the notary pays to the State and local authorities. The total amount is generally between 6-8% of the property's sale price. In addition, if the purchase was made through an intermediary (realtor), the seller usually defers commissions on the purchase price. But taxes do not cover this part of the price.
Once in the heritage, the property is then subjected to various taxes. Some apply for French residents and foreigners as well (local tax, income tax generated by the property if it is rented out, and wealth tax if your property in France exceeds 1,3 million). If the property is not rented, non-residents are subject to income tax at a flat rate equal to three times the rental value. However, this tax does not apply to all foreigners. Indeed, some bilateral agreements preventing double taxation allow foreigners to be exempt from paying this tax in France. Mechanisms of exemptions and tax breaks also allow property owners in France to reduce taxes, sometimes substantially. Lawyer specialized in tax planning could for example advise his client to create a SCI (property management company). Even at the time of the sale, the tax lawyer knows how to use tools given by French legislation to reduce tax on real estate gains.
- What are the professionals involved in terms of real estate operations?
Even if buying or selling a property requires services of a notary, it is important to be assisted by a lawyer at all stages of the purchase (negotiation, proofreading of acts ...) to secure the transaction and anticipate any future problems.
In France, all real estate transactions are drafted, taken and recorded by a notary who is a judicial officer. He ensures legal security of transactions by doing series of formalities and procedures. He checks marriage regime of the purchaser, nationality, the validity of deed provided by the seller. He communicates to the land registry administration the seller’s intent to alienate in order to make sure there is not going to exercise pre-emption right, verifies parties’ civil status etc ... He must also check ownership transfers or bank transfers that may be sent to him and the seriousness of banks that have performed these transfers. In addition, he advises parties and prepares the final purchase agreement. Finally, he publishes the deed in order to certify that you are owner of the property and retain it for 75 years.
In regard to the negotiation and drawing up of preliminary contracts, the seller generally needs a realtor. It is now increasingly common, either for the seller or the buyer, to use services of a lawyer acting as an agent in real estate operations, who is a real legal support for his client.
- What are the costs and who pays them?
According to the Civil Code provisions, fees linked to that service are paid by the buyer. However, buyer and seller can intend to conclude a “contrat en mains”, that means that the seller will pay these fees. As for the lawyer, he is paid by the one that mandate.
In principle, purchase of real property situated in France is done according to the currency in France, namely euro. Properties are valued in euros and sales contract will set a price in euros. Exchange rate also represents a particular challenge in real estate sales.
- Can foreign buyers have mortgages?
Non-resident foreigners may take out a mortgage in France. However, requirements are stricter. The buyer will usually provide a personal contribution of about 20% of the price of the property and be able to pay all legal fees or related costs. Indeed, banks do not lend the total price of the real estate acquisition. However, the remaining amount can be provided if the purchaser has stable sources of income. Depending on the amount and stability of income, the amount that credit institutions willing to lend is growing. In fact, the law provides that debt ratio of borrower does not exceed 33% of his revenues.
Currently, France has favorable conditions to have mortgages since rates are really low and this decline continues to rise in recent months.
A lawyer can be an intermediary between investors and banks, especially in order to negotiate the best rates for his client and to advice on warranties. Investment questions need large knowledges on French realty market and its protagonists. Thanks to our experience and our diverse skills, our Law firm helps our clients who want to invest. Our expertise allows us to follow up and realize their project: tax and wealth optimization, bargaining power, legal security of the operation ... So, who’s better than Picovschi Law Firm to advise and assist you with your project!
Read the full article in the New York Times following the link.