PL29 – 27th August 2003.

Posted by admin in Property Letters | August 27th 2003

Dear All,
Vicky and I return to Cannes for another spell there in less than two weeks time.

Before we depart I thought it might be useful to many of you if I summarise what we do there; what we are investing in, and how, and why?

LITTLE OF THIS IS NEW STUFF – most of it has been in previous property letters. I have collected it together and updated it for anyone who wants to look at the whole concept again, (without wishing to go back through the last year of correspondence) and of course it might be useful for those of you who have not been on the mailing list for very long.

For those of you who are right up to date, I apologise for adding to your mailbox.
With best regards,




We continue to learn here every day

The more we learn the more we feel that we have very good long term prospects in exactly what we are doing. Our focus from the beginning has been on properties that you and I might not necessarily buy for ourselves and our friends and family, but on income generating units that have the ability to increase in capital value too.

We have visited the Cote d’Azur for many years and have very good and long term friends here. But before we started buying a year ago we travelled up and down the length of it. We looked at Nice, Villefranche which we love, Monaco, Menton, Cagnes sur Mer, Antibes, Baai des Ange, and Juan les Pins. But every piece of real intelligence we could gather pointed us at Cannes, and within Cannes, at the Croisette. And consequently all of the 20 or so apartments we have bought now are within a stones throw of the Croisette or inside it. All are within 15 minutes walk of the Palais des Festival.

We saw very little chance of covering our mortgages, let alone the rest of our costs, from summer and possible occasional out of season lucky rents. We had to get to the festival/conference delegates. Hosting delegates and business people really is major business in Cannes, and accommodation for them is difficult, especially for those who don’t feel familiar and comfortable in speaking French. Also surprisingly the service and backup offered is generally shoddy, so with a little normal Southern African attention to detail and care, we are already finding that our customers and guests are delighted.

We continue to rely heavily on a great deal of very good professional help and the best advice we can get in France and in South Africa from our accountants, lawyers, experienced agents, friends and family.

We feel very comfortable with our present business model, where every one of our investors, many of whom are close friends, enjoy complete ownership of their own property or properties. They can at the end of the day do what they like with them – sell them, get another agent, or live in them. I have yet to meet one who is not pleased he got into Euros when he did. A year ago a Euro cost us 60p, and now it costs 72p. A year ago a Euro was worth about US95c and now it is worth US119c. According to a Financial Times article in June the Euro is likely to strengthen another 10% against sterling this year. That may or may not happen, but I think it is unlikely to go backwards very far.

Who are we and what do we all do?

We have settled into a natural division of responsibility, the lines of which we cross freely and frequently in order to help each other whenever we need to.
Guy and Vicky – communicate with you and the agents (many of them) in order to try to find the best value investment properties that exist in Cannes. We continue to focus on investment properties (unless an individual is looking for something specific like a holiday home for personal use) and look at literally hundreds of them. When we locate a really good proposition we try to match it to the needs of those who we know are waiting and wanting to buy an apartment, or we put its details out generally in a letter (e-mail) for all who are on the mailing list to have a look at. Once someone has decided on a property that suits them I negotiate on their behalf, agree a price with the seller, and sign an agreement. Then I help the buyer all the way through the bureaucratic landscape of lawyers and notaries, through the loan application process, all the way to the signing and transfer of ownership into their name. Some apartments that we buy need varying degrees of renovation and/or furnishing and decoration, and Lao and I deal with the builders – get their quotes for the work and liaise with the new owners about costs, plans, transfers of required funds, etc.

Vicky – with her experience, has helped Lao introduce an accounting system based on QuickBooks, and the two of them together keep it right up to date, producing full statements of account for every owner each month, and keeping it in line with French regulations. AzurAccom is registered as a French Company, and subject to French laws.

Katherine – does the furnishing and decorating of the apartments. She does a brilliant job with the budget she is given to convert a bare renovated room into a home away from home by furnishing and decorating it with care and originality. She travels far and wide in search of exactly what she wants for an apartment that she is working on, and has a real understanding of the costs involved, and the financial constraints of investors, and yet manages to create something original and lovely every time.

Our rental operation:

It is obviously a snowball. The more people who know about us and tell their friends, the more bookings we get, and already we are seeing repeat visits and people coming to us because we have been recommended to them. It takes time for this process to gather momentum, and we are doing all we can to speed it up.

Lao and Katherine have their feet well under the table in Cannes now, and boundless enthusiasm, ideas and commitment, and I believe that a year from now we will look back in wonder at the leaps we have taken forward, as we do now when we look back to last year when we were just beginning.

I love the little story of a shoe factory that sends two scouts to a region of Africa to study the prospects for expanding their business. One sends back a fax saying,

“Situation hopeless. No one wears shoes.”

The other faxes back excitedly,

“Fabulous business opportunity. They have no shoes.”

In Cannes believe it or not (and perhaps in much or all of France) there is no service! I see a fabulous business opportunity. They offer no service.

On capital appreciation:

We have seen an increase in property values along the Cote d’Azur and in Cannes in particular, which look to be in the region of 12 to 20% from what we personally can see from revisiting properties we have seen before, or which are similar to those we bought a year ago. Our own observation is consistent with local knowledge, and the statistics we can get hold of. There is a slowdown in property prices in the UK as everyone knows, and they may level out or even decline, but long term trends have been consistently upward for many decades, and the French property market has not been as overheated as Britain’s or even Spain’s in the last decade. In addition we are concentrating on smaller and highly rentable units in one of Europe’s most marketable areas. I am confident in the medium to long term, and if we have significant short term gains such as we are experiencing at the moment, I consider that as a bonus. We look to returns from rentals to bring us income first, and capital appreciation as a medium term wealth builder.

Our own sample of purchases over the last year is interesting and revealing when we compare average costs per square metre for similar properties:

7 apartments bought in May 2002 – average price per sq.m. 3112€
7 apartments bought in November 2002 3308€
5 apartments bought in May 2003 3619€

The figures reflect an increase from May to May of 16.29%

Why is property good?

I have compiled a few pages that I can easily forward to you on this subject if you would like me to (just ask), however here are a few thoughts:


• You don’t need much of the purchase price in cash to buy the property you want. (Leverage)
• You can buy property worth far more than you are paying for.(Leverage again – using the bank’s money)
• You can often increase the value of the property you buy significantly without spending much on it.(Forced appreciation by way of simple improvements)
• You don’t have to sell the property to reap the benefits of your growth.(Re-mortgaging or refinancing – further leverage)
• You don’t have to monitor your properties closely from day to day because the market is not volatile.(As the stock market is)
• Property prices tend to increase smoothly and consistently.(Natural appreciation)
• Property has exceptional and privileged tax advantages.
• Fluctuations of any one property’s value relative to the average for any area are very slight. (20 square meters in Adderley Street is likely to be priced similarly to any other 20 square metres in Adderley Street)
• It is not difficult to locate a geographical area or region or city where you are going to do better than the national average. (Umhlanga Rocks and Clifton must surely beat Springfontein or Naboomspruit as investment options)
• It is a relatively simple, reliable and consistent investment, with great cash and wealth building potential. (From rentals and capital appreciation respectively)

Why France?

• Financial Mail – “If you really want to get out of rands and into property, go to
• Euroland. French property for instance, is going at bargain prices.”
• There is an increase in demand for rental property combined with a decrease in supply. For this reason the French Government are sponsoring a ‘leaseback’ scheme where they guarantee the owner of rental property a minimum 6% net return, but the term of the agreement is 9 years – a bit restrictive. It is designed to encourage supply.
• More than 25 million tourists visit France each year. This is not a passing phenomenon, and with the new improved and cheaper transport links, the demand for self catering accommodation in France continues to grow.
• Easyjet, Ryanair and others offer Nice-Paris for €22, and London, Bristol, Frankfurt, Geneva, Stockholm connections for similarly ludicrous prices.
• Finally, we speak French!
And why specifically the Cote de Azur?
It is a fact of Europe today that people are demanding more and more access to sunshine, wherever they may live and work.
The Cote d’Azur has superb beaches, a beautiful sea, a stunning backdrop of mountains and snow, and quaint and ancient villages boasting fabulous cuisine. It is only an hour and a half by car to some of France’s most famous ski slopes. What is not so well known is that 1.8 million business trips are made to the Cote d’Azur each year. There are year round congresses, conventions and trade fairs, and over 200 national and international professional events attracting 300 000 delegates yearly. The development and infrastructure to cope with this growth has been put in place over the last 20 years, and continues to improve. Cannes is undoubtedly the centre of it all.
What are we investing in?
• In every case we have focused on rentability, and the potential for a good Return on Investment.
• Also in every case we have focussed on potential for Capital Appreciation
• The most expensive apartment we have bought so far has cost 197 000 Euros, and the least expensive 73 000 Euros.
• The Average cost is about 125 000 Euros, being about 90 000 Sterling at today’s exchange rate. (75 000 Sterling for the same 125 000 Euros in May 2002!)
• Many but not all of our apartments are very small.
• All have a great position.
• Some needed refurbishment and some were recently refurbished.
• Some were sold furnished, some not, and in some the furnishing was so terrible it had to go.
• Most are being bought with a mortgage. (50% for Zimbabweans, 60% for South Africans and 70% or 80% for Europeans) The interest rate has dropped since we started from 4.1% to 3.7%, adjustable in line with ECB rates once yearly, for 15 years.
• We have made lower offers and have achieved significant reductions in the price of some apartments. Interestingly the bank has valued all of our properties higher than the prices that we have paid for them.
• All are individually owned (or shared).
• Vicky and I charge a 2.5% “finder’s fee” upon transfer to help cover our not insignificant costs.
How much do you need to start investing?

Some people choose to buy the apartments outright, some to seek finance, and some share an apartment with friends or family members. A typical investment with a 50% mortgage however looks like this: Cost of apartment – 100 000€ (always includes agent’s fee)
Deposit (50%) 50 000€
Transfer Duty (+/_ 6.5%) 6 500€
Finders fee (to Guy & Vicky) (2.5%) 2 500€
Some renovations (not always required) 5 000€
Furnishing 3 500€
Total investment 67 500€

That’s about 48 500 sterling. The investment may be less if you are S. African or English or from a country other than Zimbabwe and can qualify for a bigger mortgage.
Where more significant refurbishments are undertaken, as has been the case in a number of properties that we have bought, the bank will finance part of those improvements, at the same rate of 3.7% p.a. over 15 years if needed.
Some questions:
For interest sake, I have copied some of the questions that potential investors ask. The questions are helpful because they cause us to look ever more thoroughly at what we are doing.
1. Who does the income tax returns for the French authorities?
2. What are the costs of preparing the income tax returns?
3. Who does the accounts and at what cost or is this in the management fee?
4. Who does the accounts for the SCI & LL Co. to send to the French Authorities?
5. How much is the tax on interest and capital gains, and death duties?

Who does the income tax returns for the French authorities? Normally it would be the proprietor, and they are due each year at the end of February. However our accountant in Nice has suggested that it is a very simple matter, and we could do it for you for a small “honoraire”, then send them to you for signing, and forward for you to the authorities if you wished.
What would be the costs? It is hard to be exact, but he thought that preparation and submission would cost no more than 200€, and that those whose annual income exceeded 10 000€ might consider it wise to run them past the accountant (not obligatory) in which case budget 400 to 500€.
How much is tax on a) interest, b) capital gains, and c) death duties?
a) Income tax. Minimum is 25%, and it rises through various bands to a max. 50%. It is charged on NET profit, so all possible deductions are factored in first. French authorities are very relaxed about where you choose to pay your taxes, and if it should be France that you choose they are quite happy with that. No questions.
b) Capital gains tax is 33%. Price of property, plus all notary’s fees and transfer taxes, plus costs of improvements to property, plus a generous devaluation and depreciation allowance of about 2% per annum each, deducted from the new selling price is your capital gain.
c) Death duties are calculated on a sliding scale, depending on whether you leave heirs who are in “direct line” (immediate family), but for most of our purposes one can work on about 30 to 35%.
There are so many facets that need to be managed that it is clear that we need first class and full time management on the ground.
Lao and Katherine are in charge and have a couple of New Zealanders helping them. Our charge is a very competitive 15% of rental income, which includes a lot which is over and above the norm. Further and complete information on these services are gone into with owners in detail further down the line. We do in fact provide such a complete service, if required, so as to leave you, as the proprietor, with no immediate responsibilities at all. All is taken care of.

The last word:

I am more than happy with our first year, and when I look at how far we have come I feel confident that the second year will see us established as major players in property rental in Cannes, offering guests a better service than is normal in the area, and our owners significant and pleasing returns on their investments. That is our aim and objective.

For anyone particularly interested in investment – I wait to hear from you. I will happily send information which is far more detailed than would be appropriate in a letter like this.

Please feel free to make contact with us if you are interested in investing, or just in more information.

Please come and see us in Cannes and have a “look around the farm” with us. If Vicky and I are not in Cannes when you are there, Lao and Katherine will happily show you around.

Please put others who may be interested in our scheme in touch with us.

Please. Please. Please spread the word among your friends and contacts that we are there for them in the South of France.

Thank you for taking the time to read what I have written and I hope you have found it interesting. I would very much appreciate any comments you may have.


Leave a Comment