Postcard from the Riviera 1

Posted by admin in Property Investment, Property Letters, The South of France | June 6th 2007

Postcard from the Riviera.

Why invest in France?
•    France receives more visitors than any other country in the world! (Fact).
•    Millions visit France, and with new, improved and cheaper transport, demand for accommodation continues to grow.
•    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 increased demand for rental property and decreased supply.
•    Low-cost airlines are sustaining demand for property in France.

“Hello” Mr Sarkozy.

“The French people have chosen change, and it is change that I will implement” Sarkozy declared during his victory speech. “We will break with the ideas, the habits and the behaviour of the past, in order to get France moving again.”

His domestic agenda has three main tenets:

1)    Hard work – he will disable the 35 hour week.
2)    Mortgage-interest payments should be deductable, with other measures to diminish the tax burden.
3)    Immigration rules will be tightened.

Discussing the result a panellist from Goldman Sachs said: “Shrewd investors bought French stocks about three weeks ago.” There is confidence that the French economy is awaiting take-off as the British economy did after Margaret Thatcher’s victory in 1979.

A recent leader in “The Economist” says: “…Europe’s economies are now doing so well, with growth rising and unemployment falling and that helps to create a more benign climate in which to make painful reforms…. The big vote for Mr Sarkozy partly reflects a burning desire to make up lost ground after years of under-performance. The firmer he is on taking on unions, insiders, pensioners and others with a stake in today’s over-protected system, the greater will be the eventual economic rewards.”

He will meet resistance but Sarkozy has his mandate, the hard left was crushingly defeated, and public opinion is firmly on his side.

Why buy on the Cote d’Azur?

The Riviera has abundant sunshine, superb beaches, beautiful sea, a stunning mountain backdrop, quaint villages, fabulous cuisine, and world-beating golf courses. It’s an hour by car to famous ski slopes, and yet is the warmest department in all of France!

•    Nice is the busiest airport in France after Charles de Gaulle.
•    Cannes is the biggest tourist destination after Paris, and hosted 2.5 million visits in 2006.
•    Cannes is also the second “congress city” after Paris, and hosted 320 days of congresses in 2006, and 512 032 registered delegates attended 110 different events.

Whereas we all know that past performance is not necessarily a reflection of future performance, the Riviera has been a “Star” for 120 years and the contrast with other heavily marketed “sunshine spots” in Europe… indisputable.

High Tech Investment:

The Riviera attracts 35% of R&D companies establishing in France – ahead of Paris. Americans have invested here since the 1960’s – Texas Instruments, Cisco, Nortel, American Express, HP, Accenture and many others. They total 122 high technology companies, against 84 British companies whose contingent is growing rapidly. The reasons are all around, but paramount is the skillset of the available people. French tertiary education is excellent, and generates highly skilled engineers – and educated people want to live here! They only go elsewhere if they don’t find work on the Riviera.

More specifically?

Travel east of Nice to Villefranche, Monaco, Menton, and west to Antibes and Juan les Pins. In the foothills you have Mougins, St Paul, and Valbonne…. However all investment intelligence should point you towards Cannes for income generating investment.

What would I buy?

Many South Africans focus on income-generating units with the ability to increase capital value too.

Although rental properties in Cannes are of great interest to investors there is increasing interest in “luxury” apartments and villas. There’s a rental market for luxury products, and there are specialists in that market, but some prefer to enjoy them in an environment not easily matched anywhere, safe knowing that their money is well invested.

How much would I need to start?

There are smaller investment properties for under 150 000€, but a one bedroom apartment now ranges between 250 000€ and 330 000€. A typical investment looks like this:
Cost of apartment – 300 000€ (includes commissions)
Deposit (30%)                                                         100 000€
Transfer Duty (+/_ 6.5%)                                         19 500€
Consultancy fee (2 5mg cialis for sale.5%)                                             7 500€
Some renovations (if required)                                10 000€
Furnishing (if required)                                            12 000€
Investment                                                              149 000€

Can I get credit?

In 2002 the borrowing rate was 4.1%.
In 2005 rates dropped to 2.75%.
Today they’re back to just over 4%.

An attractive characteristic in France – the monthly repayment does not change, making budgeting very easy. If rates change the duration adjusts, not the monthly commitment.

Borrowing at 4%, partly self financing through rentals, and reaping 15% capital growth has been a profitable investment option for many.

And capital appreciation?

From the regional Chamber of Notaries:
•    Increases in property prices across the region had been 15.5% p.a. in the 14 quarters ending 2004.
•    In 2005 it was 16.7%.
There has been a slow down in 2006:
•    Theoule (west of Cannes) saw an increase of 25%.
•    Cannes dropped a bit to 9.4%.

•    Average price of apartments rose 12.4%.
•    Houses and villas increased by 10.9%.
•    But the winner …the price of land, which rose 17%.
Also emerging from the report:
•    Since 2000 apartments more than doubled (+123.5%).
•    In Cannes the increase was 126%.
•    Apartments increase the bigger they get in Cannes, so one bedrooms averaged 5100€ per square meter, against two and three bedrooms at 5800€ and 5900€. That surely reflects a shortage of supply of larger properties.
•    Houses and villas in Cannes rose 22% in 2006. (The average dwelling cost 898 000€.)
•    The price of a four bedroom house in Cannes rose from 1.1m. to 1.36m. euros.

Appreciation update.

The “Observatoire Immobilier” (Property Watchdog) reporting on the first six months of 2007 notes that prices are still increasing. Buyers were paying 5% more on new builds and 10% more on existing buildings compared to the same period last year. One reason quoted is the lack of offers on the market leading to a shortage of housing. Nearly 30% fewer new-builds were released in the six months than in same period in 2006, and in July properties for sale were significantly down on January.

Compared to 2006, studio prices rose 7%, one bedrooms 3%, two bedrooms 4%, and a hike of 16% for three or more bedrooms, making these the most sought after in the Cote d’Azur’s property portfolio.

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