Posted by admin in The South of France | September 12th 2004

This week Iraq is under attack which seems incredible and unbelievable, especially as it plays out on our TV screens. However most important decisions are made under conditions of uncertainty, and they will inevitably cause us anxiety and concern. Our ability to act in spite of our fears will determine whether we succeed or fail.


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. It is designed to encourage supply.

Sterling is likely to lose value in relation to the Euro in the next few years. Specifically it seems inevitable that the UK will go to the Euro soon, and when it does sterling will devalue or the Euro will revalue in the changeover. When we bought property in Cannes in May, 100€ cost us 60 pounds, now it’s costing 69.9, and a US$ is worth less than a Euro.

Also we speak French!

And why specifically the Cote de Azur?
Firstly, and importantly, Vicky and I like it there.
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 de Azure has superb beaches, a beautiful sea, a stunning backdrop of mountains and snow, and quaint and ancient villages. It is only an hour 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 there 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 undoubtably the centre of it all.
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 for similarly ludicrous prices.
The stock market has been far from exciting, and money invested in savings accounts at 3 to 4% hardly more so.
• Russ Whitney – “I know from personal experience that real estate is the simplest, fastest and most productive way to generate significant sums of immediate cash, and it can help you lay the groundwork for even greater profits in the future. This is especially true for beginning investors.”
Property offers the best tax shelter.
Leverage. It is simply the extent to which credit is used to finance an investment. Leverage pays off because it allows us to tie up property at a fraction of the total value, and to take advantage of the slowly depreciating value of the Euros used to pay off the debt over time. Leverage is one of the major advantages that property has over almost any other investment.
You couldn’t borrow money to buy stocks for example, and nor would you want. With property, if all else fails you still have the property, even if in adverse circumstances it may lose value in the short term. On the stock exchange, if all else fails, you have nothing!
Obviously, if your returns (total ROI) are greater than the rate of interest you are paying, then the earning on a €100 000 investment for which you have only had to invest €50 000, compare very favourably with the earnings you are likely to receive on a €100 000 investment that you have had to pay €100 000 for.
The percentage returns on rental properties tend to increase the smaller the property.
Returns on rental properties (U.K. figures) :
• o House with furnished bedsits 19.3%
• o 1 bedroom flats 12.5%
• o 2 bedroomed flats 11.5%
• o 2 bedroomed houses 10%
• o 3 bedroomed houses 8.1%
• o 4 bedroomed houses 6.3%
• • The cheaper the property the higher the rate of return.
• We have bought 17 studio or one bedroomed apartments so far. All are in the “Croisette” in central Cannes, less than 5 minutes walk to beaches, and 1 to 15 minutes walk to the Palais des Festivals and other major conference venues.
• 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 excellent Capital Appreciation (15% p.a. is about average for the area)
• The most expensive apartment so far cost 175 000 Euros, and the least expensive 73 000 Euros.
• The Average is 108 000 Euros, being about 74 500 Sterling at todays exchange. (65 000 Sterling last May!)
• Many but not all are very small.
• All have a great position.
• Some need refurbishment, and some are recently refurbished.
• Some are sold furnished, some not, and in some the furnishing is so terrible it’s got to go.
• Most are being bought with a mortgage. (50% for Zimbabweans, 60% for South Africans and 70% 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 have valued all of our properties higher than the prices that we have paid for them.
• All are individually owned (or shared) and the new owner is free to trade, sell, rent, manage or occupy the apartment as he sees fit.
• Vicky and I ask for a 2.5% “finder’s fee” upon transfer to help cover our not insignificant costs.


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 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 46 500 sterling.
Where more significant refurbishments are undertaken, as is the case in a number of properties that we have bought, the bank will finance part of of those improvements if they are “value adding”, at the same rate of 3.7% p.a. over 15 years.
For interest sake, I have copied and pasted below some of the questions that a potential investor asked me in an e-mail the other day. The questions are helpful because they cause us to look ever more thoroughly at what we are doing, so please ask.
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?

The most common question is “what happens if there is a war with Iraq?” I don’t know, but the chances are that Europeans will tend to stay within the perceived safety and security of Europe, but still look for fun in the sun…. Cannes??
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”, 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 devaluation and depreciation 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. It is a massive job, and Vicky and I just can not commit to being in Cannes all the time.
Our son and daughter in law, Lao and Katherine have been in London for about 8 years, except for a break of a year or two in Zimbabwe, and wanted to get out of that rut. It took them less than 24 hours to decide to leap in when I offered them the opportunity, and I am very comfortable that they will put in whatever it takes to make this enterprise fly. It was a huge decision for them to make but Lao has been involved since the outset, built the website, and contributed enormously with ideas and support.
When we say your property will be managed for you, what do we mean?
o Details of all financial transactions in respect of your property will be constantly updated.
o Banking, and payment and control of local accounts for water and other amenities, taxes and levies etc., can be handled for you if you wish.
o Floats for minor maintenance and monthly payments received and receipted.
o Regular property inspection for damp and damage.
o Inventory control.
o Contracts prepared and signed.
o Rents received and receipted.
o Deposits and booking fees received and receipted, and deposits refunded after inspection of the flat.
o Basics such as control of keys, ensuring that toilets are in working order, and that doors windows and gates are left locked.
o Maintenance and cleaning sub-contracted.
o Ensuring water, gas and electricity supplies are working.
o Quotes to completely equip a property from scratch if required.
o E-mail to owner with property appraisal or report from time to time.
That’s a broad outline of the services that we are providing. The charge is a very competitive 15% of rental income.
We need your help please. We now have 17 apartments in our group, and the number looks sure to rise. We need to fill beds. All of you have contacts all over the world who would love the South of France. Some of them will have been there before and would love a little push to go again – PLEASE TELL THEM ALL ABOUT US.
We have to get onto the map. We have to get known, and build ourselves a reputation. Yes, the website is up and running, and we will advertise wherever we can afford to, for best results, and have registered ourselves at the tourist information bureau and with the conference organizers, etc. etc., but the bottom line is that people must have heard of us before they know to dive into our website. Nothing will be stronger than word of mouth, and ultimately people having such a good time that they come again and again.
The first year is going to be a little tough. Obviously subsequent years will get better and better as we become known. The energy and enthusiasm that goes into getting us going will not be wanting, and the service that we provide surpasses the service people are used to by a wide margin, because the service that is normal here is generally lousy.
Our website – www.azur-online.com is increasingly worth having a look at. Please do.

That is an overview, as brief as I could make it, of our activity in France. If you wish I will give you more detailed information on all aspects. Please give it some thought, and tell people about it if you will.
Kind regards,
Guy Watson-Smith.

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