You would like to invest in France but you are not subject to the French fiscal system. French Houses will help you with the procedures so that you can put your projects into practice. Step by step, we will guide you through the necessary procedures…
A – The 3 types of investments that we offer
B – The purchasing process
A – The 3 types of investments that we offer:
1 – Leaseback scheme (LMNP or Demessine)
(LMNP stands for
Loueur en Meublé Non Professionnel or Let Furnished Non Professional)
This system was introduced in France in 1986 by the Government to increase the supply of quality accommodation for tourists in regions with high tourism potential.
Tourism residences are for seasonal letting (usually on a weekly basis) and offer a whole variety of extra services, such as a reception, breakfast, cleaning, bed linen, and also swimming pool, sauna, jacuzzi, hammam, sport room, tennis courts...
Serviced Residences are part of this tax scheme. They are generally located in the town centre to accommodate students, business people or else, they may be Accomodation Establishments for Elderly Dependent People (EHPAD).
This system enables purchasers to buy a property (and therefore have full ownership) guaranteeing them a rental income over a period from 9 to 12 years, which can be renewed. The property is handed over to a Management Company that sub-lets the units, and pays the owners a predefined and guaranteed counterpart income (usually every quarter). The main advantage of this system is to own a property that provides a guaranteed rental income, but where the property is entirely managed by a third party (the management company operating the residence).
Depending on the case, the owner may also benefit from free occupancy of his appartment for a number of weeks, or to have a “holiday time allowance” in the residence, or even in another residence managed by the same management company. This personal occupancy may not be guaranteed (in general in student residences or in EHPAD). The rental income received represents on average a yield level ranging from 2.5 to 6% per year. Generally, the less the personal occupancy, the greater the yield. .
In addition, this system enables purchasers to be refunded the VAT on their purchase, representing an immediate gain of 19.6% (for new property) on the purchase price. The VAT may be paid by the property developer or by the purchaser. In the latter case, the refunding is made a couple of months following the actual delivery of the residence.
Depending on the tax status of the residence (LMNP or Demessine), the property is either acquired furnished, or unfurnished (in which case it will be furnished by the management company). Given that the property is situated in a tourism residence, all the units must have the same furniture and finishing. The purchaser will not be given a choice of tiling or wallpaper… However, the management company that runs the residence will be responsible for maintaining the furniture and the apartment. Only co-ownership charges and the "taxe foncière" (land tax) will have to be paid by the owner.
The vast majority of tourism residences are sold off plan, and the purchasers generally pay reduced notary fees.
Purchasers whose tax household is in France may benefit from additional fiscal advantages; this explains why tourism residences sell so quickly in general.
2 – The Buy to Let scheme (Robien or Borloo)
In this system, the purchaser buys a property that will be let as a main residence to private tenants.
Management of the property (search for and management of tenants, day to day management, and payment of rent) is guaranteed by a management company with which the owner signs a management agreement.
Personal occupancy is not possible for the owner for the duration of the management agreement.
The property is purchased and let unfurnished. The payment of rent is guaranteed, but not the amount, which will depend on the local market (supply & demand). However, a certain number of additional guarantees are offered to the owner, including the guarantee of rents even if the apartment is vacant, a guarantee on repair costs if any damage is caused by the tenants and a guarantee to find the first tenant for you.
The management agreement is generally signed for a period of 9 years, after which the owner can retrieve their property for their own personal use. This is particularly advantageous for purchasers who wish to occupy their property as their primary residence or as a second home when they retire, for example. For 9 years, the owner will pay off part of the investment, thanks to the rental income received.
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The rental income is generally paid on a monthly basis by the management company.
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The property is acquired all taxes included, and no VAT is to be reimbursed.
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The average yield varies between 2.5 and 5.5% per year.
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The developments sold off plan are subject to a reduced rate of notary fees.
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These developments are generally situated in places where there is a high rental demand, and are therefore not limited to so-called tourist areas.
3 – Classic purchase
This is a traditional purchase of a property used as main residence or second home.
Sold off plan, or resale.
Purchase including taxes, and VAT is not refunded.
The owner can either live in the property, or rent it out on a seasonal basis or for the long term.
The property is purchased unfurnished, and the owner can decide to rent it unfurnished or furnished.
This type of investment is not included in a particular type of fiscal scheme there are no specific advantages from a tax point of view.
The owner, if he or she decides to rent out the property, can do it alone or via a classic estate agent.
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B – The purchasing procedure
We will present the purchasing procedure of a new property sold as VEFA (Vente en l’Etat Futur d’Achèvement), i.e. Off Plan.
The first stage is the reservation of the unit.
A deposit of 5% is usually requested to reserve the apartment. This deposit is paid into an escrow account with the Notaire (Notary) in charge of the transaction. It is not available and cannot be accessed. Proof of the transfer must be provided to the marketeer to guarantee and validate the reservation, usually within 72 hours.
The following step is to return the contracts signed by the purchaser. This must take place within 3 weeks as of the date of the reservation. Given that most contracts are in French, foreign clients often consult a lawyer specialising in this type of transaction during this period of three weeks.
The contracts are then countersigned by the developer and a countersigned copy is sent to the purchasers. The cooling off period of 7 days that the purchasers have if they wish to cancel their purchase starts on the day that the letter is first delivered. The purchasers are strongly recommended to submit their mortgage application within 15 days of signing the contracts or at the latest 15 days following the receipt of the countersigned contracts.
The purchaser is required to inform the developer of the bank's decision as soon as possible and is generally required to send a copy of the accepted mortgage offer. This is then sent to the Notaire so that the draft of deeds can be drawn up.
The draft of deeds are sent to the purchaser by the notaire with, if necessary, power of attorney if the client does not wish to go to the notaire’s office in person to sign the final deed of sale. This power of attorney gives the notaire all authority to sign for and on behalf of the purchaser. From that moment onwards, the buyer is the owner of the property.
When buying off plan, the owner will be asked, once the bill of sale has been signed, to pay the total price through stage payments proportionate to the progress of the works. A payment schedule is attached as an annexe to the reservation contract.
The costs for the purchaser:
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Notary fees: Reduced rate for an off plan property, full rate for an existing property.
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Mortage fees, debited by the bank depending on the amount borrowed.
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Any legal fees if the client calls upon a lawyer to sign the contract
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The Power of attorney fees if applicable.
The tax firm charges (the organisation that looks after VAT reimbursement procedures for the leaseback scheme).
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