Property Letter – 13 th November 2006

Posted by admin in Property Investment, Property Letters | November 13th 2006

Dear All,

There are some very interesting properties at the end of the letter, so if you want to get straight to them, please scroll down.

MORE on Capital Appreciation:

We have to face it, that as important as rental returns are to our cash flow, the thing that defines property as a wealth-builder is capital appreciation. Last week I couldn’t help noticing a news item that was repeated on Sky for a day or two.

On AVERAGE the UK property market has risen by 187% in the last 10 years! That’s 18.7% per annum. However in the same period the average earnings of Brits only rose by 54%.

So how does France compare? If I can find out I will let you know in my next Property Letter. What is more interesting though is the “big picture”. The questions Sky interviewers inevitably asked of the experts interviewed were “Why?” and “How?” when people’s earnings are only up 5% p.a. 

The consensus: Land is a finite resource. The population of potential buyers is growing. Green areas are no longer being readily released for development. And increasingly people want to own property, because they have learned that it is a sound investment – and they like to own where they live, if they can. This is a traditionally British characteristic which has not yet overrun France, where it is still quite acceptable to rent your home.

However France is changing. As the French become more global (reluctantly it might be said), and as the economic advantages of owning property are increasingly appreciated, aided by exposure to the internet, the French property market is moving. I read about it in the French press, but also see it as first time French buyers come through our agency doors every week.

And then there is the ever present foreign buyer! So many Brits, and Irish, Scandinavians, Germans and Russians are continuing to buy property here, particularly on the Mediterranean coast and they help ensure that prices rise steadily.

When will it stop? I’m not sure it will any time soon – just as we have been bombarded for the last decade with alarm calls that the British property market will or had crashed, it’s actually been rising by 18% p.a.

Some crash!

The most expensive homes in UK (outside central London) are in Gerards Cross, and the most expensive county is Surrey. In France that would read Cannes and the Cote d’Azur. There are many places in France to pick up properties at so-called “bargain prices”, but there may be pitfalls too. Hidden costs and unforeseen difficulties, administrative and management issues can spoil an investment, and certainly take the fun out of it.

We decided on this very special region and have been happy with our choice – we know the area now, we understand the market, and we believe that it is an area that is unique in Europe, and that it will continue to prosper. There are, as ever, good investments to be made here whether for pleasure or for profit, or a healthy combination of the two.

The Rental Story:

Rentals are the most difficult area of property ownership to manage. It’s a minefield of hopes and fears, high emotions and some disappointments. People investing sometimes really need rental returns to stay afloat. For others it’s more important that their precious property is cared for as if they were here to do it for themselves. Hopes, aspirations and expectations vary hugely.

On rental returns:

Elsewhere on the Cote d’Azur it’s difficult to get more than summer rentals for any villa or apartment. Cannes is different in that it hosts many conferences. Investment properties therefore should suit conference rentals, in position, style and functionality, but they should also suit holiday makers in the summer, when there are no conferences. (Long term or annual rentals are an option preferred by some owners for their predictability, but they are not always easy to achieve, as rentals in the centre are considered high, and most permanent residents will look for accommodation further afield, in more affordable suburbs.)

We have experienced the highs and lows of expectation and reality, and have learned not to place too much emphasis on “weeks of occupancy”, but rather to aim for maximum “annual return” for investors. The market is competitive, and pricing is critical. One week’s pricing may differ greatly from the next weeks pricing because supply and demand govern the market.

Lao manages the rentals and their marketing, and as he says; “I can get you nearly 100% occupancy at a low price, with maximum wear and tare on your apartment, and perhaps the wrong kind of tenant, or I can get you maximum return with minimum ware and tare.” He feels that at last we are approaching “where we always wanted to be” with regard to rentals. After nearly 3 years of negotiation he has at last secured the contract to supply accommodation to the main organizer of all the major festivals, and we are now prominent on those websites. It is making a difference to next years bookings already and there is a great deal to be optimistic about.

Reality check:

Labour in France is extremely expensive by European standards (but particularly to our Southern African friends). For our cleaner or general labourer to take home 15 euros an hour (which is minimum), we have to pay another 17 euros to the state in all sorts of taxes and social charges. That is the reality – the minimum cost of labour is 32 euros an hour! Of course we group “jobs” into lots to save time, and save smaller repairs until there are others to combine with. It is the environment within which we must work for the time being.

The politics:

France (the world’s 6th largest economy) has major social issues to address, and next year’s election here is perhaps the most important ever. On the cover of “The Economist” a few weeks ago was a full page photo of Maggie Thatcher on a backdrop of the Tricolor (the French flag). The banner headline read “WHAT FRANCE NEEDS”.  Agree with the headline that France needs a Maggie or not, France’s high rate of unemployment (8-10%) is fueled by high social costs and taxes, and one of the big election issues will undoubtedly be the unaffordability of labour.

All is not without hope however – not at all!

From an in-depth 14 page report in The Economist (October 28th) :

I love this quote!

Back in 1979, a British opposition leader, lamenting the country’s “national decline”, voiced admiration for the way in which a fellow European country had transformed itself, demonstrating that “given the will, the policies, the leadership, a country can pull itself up by its own bootstraps to the lasting benefit of all its people.” The opposition leader in question was Margaret Thatcher. And the country she admired was France.

In reference to the similarities between 70’s Britain and France today:

The parallel with Britain is plainly inexact. For a start France is rather better placed than Britain was in the 1970s. Public finances may be under strain, but there is no financial crisis of the sort that forced Britain to go cap in hand to the IMF in 1976. Corporate Britain at the time was ailing; corporate France now is thriving. The CAC 40 stock market index reached its highest level for five years this year and profits are at record levels. French firms are buying up companies across Europe. Both these factors should help France to rebound more rapidly than Britain did. Moreover France has the second highest birth rate in the European Union, sparing it some of the demographic worries preoccupying countries such as Britain, Germany and Italy.

And from the “Leader” column – some fascinating truths and insights:

Yet France is a country of contradictions. Its economy may be sluggish, but its workers are among the worlds most productive. Its people are famously leery of globalization and economic liberalism, yet France boasts some of the world’s most successful multinational companies. Its public sector may be bloated and its tax burden excessive, yet the quality of its public officials is widely admired. Its mass education universities come deservedly low in the world rankings, yet Paris’s famous “grandes ecoles” are among the best in the world. In short France is a place in which, for almost every weakness, it is possible to find a matching strength……..

.In Britain, where the private sector was much weaker, it took nearly two decades to turn around the economy. If the next French president can push through the reforms needed to restore the country’s competitiveness, France could rebound far more quickly than “declinologues” assert.

I’m looking forward to next year and will watch the battle with great interest.

Chirac and de Villepan should be gone! Nicholas Sarkozy represents the right and the attractive and furiously energetic Madame Segolene Royal represents the left (assuming they both get the nomination of their parties, as is expected). Both are in their early 50’s, and both claim to represent a break with the past.

I look forward to our role (with fellow investors) as co-travelers in France on an upward path –  “in the ascendant”, as they say.

Let the (election) games begin!

With kindest regards,



Leave a Comment