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How to Purchase French Property Without Losing

Posted by Malindi Pender on October 4, 2016
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There is a funny thing about Paris real estate.

Actually there are many unusual things, especially if you are used to anglophone systems such as the U.S.. Probably the most different thing is that real estate agents in Paris are not required to pass any exams. There are no certification or education obligations which is a worry of course.

And worse than that, being a non-litigious country, they can say what they like to clients. Of course I don’t mean to imply that all agents are dodgy, but some certainly are. Which means you can’t take what they say about a property at face value.

Understanding this, you might agree that having a firm grip on how to purchase a French property is important. This article is a little dry and quite long, but there is no getting around the deep learning required. It is however accurate and it will potentially save you thousands of dollars and more importantly, time.

I’m always available for questions so don’t hesitate to reach out using the contact details at the end of the article will you.

Best of luck in your French property adventure.

By the way, I made this free 21 point PDF checklist download for the whole process after your searching so be sure to have a look.

 

The purchasing process can be divided in 3 different phases:

Phase 1: The search & offer
The offer to purchase an apartment can be made verbally or in writing. In theory a written offer which has been accepted by the seller (meaning signed) commits the seller to sell to you. You however can make multiple offers at once and see if they are accepted.

A buyer is not engaged by signing an offer. It is also possible for a seller to come back and counter offer any offer you make. Your agent will advise you on pros and cons of various moves at each stage until you arrive at a final agreement. This agreement should be confirmed in writing before proceeding to the next step to avoid lost time or misunderstanding.

 

Phase 2: The signing of the “promesse de vente”
This initial contract (“promesse de vente”), set up by the French Notaire (notary)
representing the buyer, is the most frequently used contract in France for buying existing properties. It is of great importance as it will fix the terms of the purchase and needs to be prepared carefully.

This is a binding contract by which the seller agrees to sell and the buyer agrees to buy the particular property under the terms and at the price set out in the contract. This contract is usually subject to various get-out conditions (“conditions suspensives”).

There are safety-net clauses which usually cover city planning, whether or not there are any charges, outstanding mortgages, easements, rights of way or any encumbrances on the property. A finance clause may also be included if the buyer requires a mortgage to be able to buy. The buyer will need to state which bank or mortgage broker they are working with, the maximum mortgage required, maximum rate they will accept and duration of the loan.

The parties are free to agree and add other conditions.

 

Here is a typical finance clause that you could see in the ‘promesse de vente’:

• Montant maximum : 600.000,00 EUR (maximum amount acceptable for mortgage)
NOTE – notaires often note only the maximum loan amount in the promesse. The logic is that you have already X amount in cash to bring as down payment therefore can’t use the excuse that you did not obtain 100% financing to pull out. This can be confusing as clients often think in terms of “I will only proceed if I get a minimum of X loan amount”. Be sure to explain to your notaire under what conditions you would need to pull out so that the promesse reflects this accordingly.

• Organismes sollicités : tout organisme (banks applied to : all banks)
• Durée : 16 ans (acceptable loan duration : 16 years)
• Conditions financières : 4,25 % l’an maximum hors assurance (maximum annual interest rate acceptable, not including cost of life insurance)

In France, the conditions listed are for repayment mortgages only. As most banks do not offer interest only mortgages, sellers are not familiar with the product and would not accept to have this stipulation in the “conditions suspensives”. Life insurance is required for most mortgages and the rate above does not include the cost of life insurance which will be a function of your age and health.

If you opt for this clause, it is normal to require that you make your mortgage applications(s) within 10 days of signing the promesse de vente and either obtain an acceptable mortgage and proceed or provide an official letter from the banks you have applied to proving you have been rejected for the above conditions. It is your responsibility to discuss this point very carefully with your French Notaire to be sure you understand the consequences, the timing and what you must do.

Please also note that French banks move very slowly and it can take 6 weeks or more to know if you are accepted or not so you should make your mortgage applications immediately upon signing the promesse de vente if not before. You are responsible to get an approval or rejection from the bank(s) applied to before the time allowed expires. If the response is positive, you are contractually compelled to proceed with the purchase or lose your deposit.

Buyers should investigate the options available for the purchase with their French Notaire or other legal representatives (read on for more information on the French Notaire.) This might include considering the structuring of the purchase through such schemes as “en indivision”, “en tontine”, with a marriage contract, a life interest in possession, with a company, or through the setting up of a will.

Do also note that if you plan to obtain a French mortgage, buying through a company rather than in your own name can limit your financing options. If you plan to purchase using a French SCI, tell your bank or broker right away as the SCI must first be set up before the mortgage offer can be issued. This will take a minimum of 8 weeks and often longer.

The seller is responsible to provide at this time the results of all required property surveys such as asbestos, lead paint, termite and electrical conformity. Please note that the building code for electric installations in Paris was recently updated so just about every apartment is now technically out of code and will have “anomalies” mentioned in the report.

The expense to bring the electrics up to code is usually quite minor. In our experience, anomalies in the electrical report are not typically accepted by the seller as a reason to lower the selling price nor do sellers usually agree to make repairs before the sale is finalized.

The buyer’s Notaire will organize the signing of the contract. If you have already left Paris before the “promesse de vente” has been prepared, it can be signed by proxy. Your Notaire will email the document to you. You must then make an appointment to sign it at a French consulate and in certain cases depending on which country you sign it in, also obtain an official stamp called an “apostille”.

Most buyers request that a ‘substitution clause’ is added to the “promesse de vente,” which gives you the possibility to change who will buy the property at the final act of sale. This can be useful if the buyer decides to change who will buy or wants to add another buyer (such as the spouse) at a later date. It can also be useful if you are two buyers, but only one person is available to go to the French consulate to have the promesse signed by proxy. If you are not sure, put it in just in case.

Your deposit or “earnest money” must be paid into the Notaire’s special account (like an escrow account) on signing the “promesse de vente” which is usually 10% of the purchase price. After the signing of the “promesse de vente” the buyer will have the benefit of a 10-day cooling off period for any second thoughts.

If the buyer cancels the purchase in this period for any reason, their deposit will be refunded less the setup fee of approximately 500 euros paid to the Notaire. At the end of the cooling off period the contract is binding.

Once the promesse de vente is signed, you have a 10-day cooling off period from the date you received your signed copy in which you can withdraw for any reason and get your deposit back.

After that, unless a get-out condition is fulfilled or a right of pre-emption by the city is exercised, you are not allowed to withdraw from the contract. If you do so, you could possibly lose your deposit, be compelled to execute the contract, pay the Agents fees, and or be obliged to pay the seller damages.

 

Phase 3: The final completion/ Closing/ Acte Authentique
Final completion is generally organized at the buyer’s French Notaire’s Office. When one of the parties cannot attend the meeting, a proxy can be signed and authority given to one of the Notaire’s clerks. Just like with the “promesse de vente”, a proxy can be signed and witnessed in front of the French Consul (or depending which country you are in, a Solicitor or a Notary Public.)

The transfer of ownership takes place in addition to the transfer of the purchase funds at this time. The balance of the purchase price plus the Notaire’s fees will need to be transferred to the Notaire’s bank account prior to final completion.

Be sure to arrange the funds transfer at least 10 days to a week in advance as international bank transfers can take time to clear. The balance can also be paid with a banker’s draft issued from a French based bank. This usually takes 48 hours and must be arranged in advance.

At the signing, the Notaire or one of their clerks will read the title to the parties. If the parties have no comment or queries the Notaire will ask the parties to sign the deed (both the buyer and seller will initial each page and sign in full on the last page.)

The Notaire will register a certified copy of the title through the French Land Registry (Service de Publicité foncière.) During the meeting the buyer will also be shown the results of the title searches such as those from the local Land Registry or the Mayor’s office.

I came up with a concise list of 20 questions YOU MUST ask the seller before purchasing. Paris is a very different market to others, and these pertinent questions will help you avoid buyer’s regret. Just click here to download for free.

Important: the buyer is responsible for obtaining homeowner’s insurance for the property that is effective the day of the signature of the act of sale. Utilities such as gas, electricity and water will also need to have a final meter reading then be transferred into the buyer’s name. Your agent can do this on your behalf, usually the day of the final signature.

The original of the title deed will remain in the Notaire’s office for 100 years. The buyer will be provided with a certified copy only. It takes several months for the buyer to receive the title copy in addition to any excess funds held by the Notaire. The general practice of the Notaire is to quote fees (frais de notaire) slightly above the actual amount required. Any funds remaining after the payment of the fees will then be refunded to clients without interest.

 

What is a Notaire? 
As seven years of law are necessary to graduate, the Notaire is the most qualified
professional of the French legal system. The Notaire is both a Public Official and counsel.
These qualifications allow him or her to efficiently advise clients in specific areas of law such as Real Estate Law, Family Law and Corporate Law.

They are able to counsel clients on matters all over France without any restrictions. A Notaire from Paris can therefore equally deal with the acquisition of a house on the French Riviera as well as supervise the purchase of a supermarket in Strasbourg or control an industrial plant in Northern France.

The French State confers to the Notaire an authentic power to legalize certain agreements such as Real Estate sales which cannot be enforced by any other means. This monopoly prevents almost any subsequent litigation concerning these contracts. However, the Notaire does not only draft and authenticate deeds. As today’s legal transactions are more and more complex, counselling clients is also a major function of a modern Notaire.

 

Transaction costs to expect
The purchase price you see in any estate agent’s window will include the estate agent’s fee.

 

Other costs
Notaire fees (which are mainly taxes and stamp duty on the real estate transaction) : 6.5 to7.2 % of the purchase price not including the estate agent’s fee.

Mortgage registration fee : included as part of the Notaire fee but only applicable if you take a French mortgage : about 1.5% of the loan amount
Buyer’s broker fee : as indicated in the contract
Mortgage broker fee : if you decide to use one
French bank filing fee : if applicable (from 0.25 to 1% of the loan amount)
Homeowner’s insurance : depends on the property, for example an average annual cost for a 75 m² apartment in Paris with normal contents can be 200 to 500 euros per year depending on coverage and deductible chosen

Currency exchange : depending on how you structure your purchase, there may be a cost to convert your home currency funds into euros for the purchase. We recommend always getting a quote from a currency broker to compare with your own bank before making any transfers as many of our clients have saved substantial amounts via brokers.

 

A note on French tax
French homeowner’s should be aware of the following taxes when purchasing property, even if they are not French residents. Figures must be taken as a general indication only and you are encouraged to seek expert legal or accounting advice based on your individual situation and project. We are happy to connect you with trusted experts at your request.

Property owner’s tax (“taxe fonciere”) – this annual tax is paid by the owner of the property based on the size and location of the property. As Paris is a very densely populated area, the tax has remained quite low over the years. The agent or seller will disclose this tax as part of the property information. For example, for a 75m² apartment in central Paris, it can be 600 to 800 euros.

Property user’s tax (“taxe d’habitation”) – this annual tax is paid by the user of the property so if you rent your property long term, it can be passed on to the renter. It is based on the size and the location of the property but also on the revenues of the occupant to some effect so the seller cannot disclose what it will be for the buyer. It is often very close to the amount of the property owner tax.

Revenue tax (“IR” or “impot sur le revenu”) – this tax would be due on any rental income collected in France for renting the apartment. The taxable rental revenue can be reduced by interest paid on a French mortgage, value improving renovations and management fees for example. Other deductions may apply based on the tax status you choose. The tax rate depends on your global revenue but should be less than 25% in most cases.
Since August, 2012, the social contributions apply on the rental income so that an additional tax rate applies on the tax rate based on the rental income (tax rate + 15,5%)

Wealth tax (“ISF” or “impot de solidarité sur la fortune”) – this tax is calculated on the total annual market value of all your real estate assets, cash, investments and other valuable items such as fine art owned in France less any French loans outstanding on the property. Therefore taking a French mortgage can help you reduce or avoid this tax.

 

As an indication, the current wealth tax rates on your total net asset value are:
Total net asset value Rate (%)

Until 800.000 € 0,00%
From 800.000 € to 1.300.000 € 0,50%
From 1.300.000 € to 2.570.000 € 0,70%
From 2.570.000 € to 5.000.000 € 1,00%
From 5.000.000 € to 10.000.000 € 1,25%
Superior to 10.000.000 € 1,50%

For French residents, the calculation is based on their worldwide assets.

For non-residents, the calculation is based on assets located in France, including:
– furniture and movable property located in France;
– real estate assets held directly or through a real estate company (such as an SCI);
– net value of shares of a company located in France (the value of the credit account in
favor of the shareholder, in French the “compte courant d’associés”);
– net value of shares of a company located in another country where the majority of
the real estate assets are located in France.

Capital gains tax – for a property that is not your main residence, capital gains tax after a sale starts at approximately 34.50% for a French tax resident and at 48.83% (33.33% +15.5%) for a non-European Union tax resident (the rate is 34.50% – 19% + 15.5% – for a European citizen residing in a European Union country) and is progressively reduced each year after the 6th first years to arrive at 0% after 30 years. Therefore if you hold your property long enough, you won’t pay any capital gains tax at sale. There is no capital gains tax on your primary residence.

For all types of properties (except building land), the capital gain is totally exempt:
– from the CGT part of the tax: after 22 years of ownership,
– from the social charges part of the tax: after 30 years of ownership

• For building land: Exempt after 30 years.
Temporary 25% Discount on the Capital Gains Tax
Applicable: to property sales signed between 01/09/13 and 31/08/2014,

• EXCEPT sales:
– of building land,
– of shares of companies whose capital consists mainly of real estate,
– to a spouse, PACS/civil partner, live-in partner, ascendant, descendant
– to a company owned by the seller and/or the persons listed above.

• to the net capital gain after deducting the allowances for length of ownership (CGT + social charges),
• for calculating the tax basis of the Supplementary Tax (article 1609 9 G of the French Tax Code) (calculated on the CGT part of the tax).

Tax on property owned by a foreign company or the “3% taxe” – if the property is
purchased by a non French company, the annual value of the property will be taxed at 3% each year unless you file a report to clearly disclose all the shareholders of the company.

This also applies if a non-French company creates and holds shares in a French company to buy the French property. Definitely seek the advice of a French accountant if you plan to purchase this way.

 

Well done for making it this far!

As you can see, the process can by quite complicated. If you simply have some questions or you would like some more hands on help, I would love to have a chat.

I am a licensed bilingual Paris property broker from the states. I know the market and I can not only search for you and talk with the estate agent, but I can visit on your behalf.

Feel free to call now on 1 (888) 533-1884, send me a text message at +33 6 77 79 11 52 and I’ll get straight back to you. Or just email me at malindi@parisliving.fr.

 

HOW TO BUY A HOME IN PARIS WITHOUT LOSING
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One thought on “How to Purchase French Property Without Losing

  • on November 18, 2017

    Hey There. I found your blog using msn. This is an extremely well written article. I will be sure to bookmark it and return to read more of your useful info. Thanks for the post. I’ll certainly comeback.

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