1st reason : VALUE
Prices of Paris apartments have increased again in 2011. Over the last 3 years, the rise is over 33% (see official index below).
In the very residential XVI arrondissement, located on the west side of the City, between Eiffel Tower and Bois de Boulogne, the average cost of an apartment per-square-foot in 2011 was around US$ 1.200. Those prices are still competitive against the top cities of the world.
Furthermore, the experts believe the value of quality real estate in the “City of Lights” will significantly grow in the future due to several objective factors :
- high demand and limited supply
- international equity capital searching for quality assets
- demographic growth
- timelessness of historic limestone Haussmann buildings that will never be built again
- legendary quality of life in Paris
Paris Apartments Prices (€ per sqm) 2001-2011
2nd reason : YIELD
Once you have acquired a charming “pied-a-terre” facing a colorful garden or overlooking the zinc Parisian roofs with a view of the Eiffel Tower or even the river Seine, you immediately realize this makes a big change from staying in a hotel. And if you chose to share it with your best friends you can save on expenses too. Another option could be to rent your apartment as a furnished flat, maybe to some executive sent to Paris by its company for one year and usually the corporation will directly pay you rent.
Now, here comes the yield, since a furnished 1BR (approx. 450 sqft) apartment located in a residential neighborood which currently sells for about 500.000 € (US$ 650.000) and a monthly rent of 2.000 € (US$ 2.600 as per today) yields 4.8%. Not bad for an investment which value grows 10% a year !
3rd reason : LEGAL PROTECTION
The French system for real estate transactions is ruled by the C.C.H. (Code de la Construction et de l’Habitation) which is probably one of the most protective in the world. One key person in the transaction is the French Public Notary, a public officer appointed by the French Government and personally responsible for the due diligence of the legal procedures. The “copropriété” legal status is similar to the condominium in the U.S., granting full ownership for the privately used parts of the property (the apartment itself) and the ownership of a share (“quote-part”) of the parts of the building in common use.
The French Public Notary is in charge of firstly preparing the Preliminary Contract for Sale and then the Deed of Sale. As examples, he will make sure that the property is free of inscriptions, that all the legal obligations like the Home Condition Report are duly fulfilled (absence of hazardous substances, lead, asbestos, etc…) and will proceed to the land notification.
All payments received by the French “Notaire” are by law transferred to a specific account at the French state owned “Caisse des Dépôts et Consignations” before the sale is completed.
4th reason : FINANCING OPPORTUNITIES
At the beginning of 2012, the home buying loans are at their lowest for the last 10 years in France. This due to the policy of the European Central Bank. The largest commercial banks in Paris, such as BNP, Credit Agricole, Societe Generale, LCL and HSBC currently grant 15 year fixed loans at a rate less than 4%. This allows for a very interesting leverage effect : with a 50% down payment on a 15 year fixed loan an investor can have the monthly installments totally paid by rental income.
5th reason : TAXATION OPTIONS
1- Rental Income Tax
a) If the gross rental income exceeds 32.600 € annually (like for a furnished 2BR aprtment) one could legally deduct from that revenue the following costs :
- closing fees and commissions
- renovating and furnishing expenses
- loan interest
- property management costs and insurance
In the end, there is the possibility no tax will be paid at all on rental revenue.
b) If the gross rental income is less than 32.600 € annually (like for a studio or a small 1 BR apartment) no cost deduction will apply. But the French IRS will only tax 50% of the rental income received, as personal income, and at a limited rate of 5 to 10%.
2- Capital Gains Tax
If an investor decides to resell its French property before 30 years after he has acquired it, he would have to pay a maximum 33.33% tax on capital gains. But, if the resale happens say 12 years, for instance, after the acquisition of the property, the taxable amount will be then reduced by 24%. Let’s take an example :
- cost of property acquisition in 2 000 : 400.000 €
- reselling price in 2012 : 1.000.000 €
- added value : 600.000 €
- taxable capital gains base 600.000 € x 0.76 : 456.000 €
- capital gains tax 456.000 € x 33.33% : 152.000 €
In that example, the net profit after taxes is :
600.000 € – 152.000 € = 448.000 € over 12 years, or about a 7.4% annual yield with inflation.