Postcards from the Riviera

Posted by admin in Property Letters | August 6th 2008

Owning “A Little Piece of the French Riviera”:

This is the fourth in this series of Postcards from the Riviera and judging by the interest that the articles have generated so far (all are available on http://www.realestateweb.co.za or at http://www.azur-accom.com/), there is a great deal of interest within the South African investment community in the two main concepts:

1.    Owning property in the Euro-zone in general.

2.    Owning “a little piece of the French Riviera” in particular.
It is a very appealing idea to many, but is it possible, and is it sensible?

Both questions have been fairly extensively and positively answered in previous “postcards”, but if the British investment community is anything to go by, the South of France is still the most sought after destination abroad, especially the “traditional places” such as the Cote d’Azur towns of Nice, Cannes and St Tropez.

There have been some questions asked:

Would I be buying “freehold” or “sectional title” or some other form of ownership?

The answer is “freehold”. When you take transfer of a property in France you take possession of the “titre de propriété” or the “title deed”. It is carefully described in the “acte de vente” or “deed of sale” with precise information on legal surface areas of land and buildings, and any servitude. In the case of an apartment the precise share (in thousandths) of all the common areas, being lifts, passages and stairwells, gardens, pool, tennis courts etc. that belong to you are detailed in the “acte”. It is on this fraction (your ownership share in thousandths) that levies are calculated and charged by the management body or “syndique” controlling and administering your building. The system is both mature and efficient, and generally well administered by the syndiques who are licensed professional bodies, answerable in law.

What are the costs – what are the numbers?

Hypothetically let us assume that you wish to buy a two bedroom apartment in Cannes for 400 000€ and want the maximum credit possible from a French bank, being 70% for South African residents. Further that the apartment you are buying is run down and needs an estimated 60 000€ worth of renovations, and you would like the cost of those improvements and the notary and transfer fees financed at 70% too. (That is possible). Because you are not in France, don’t speak great French, and need renovations and furnishing reliably overseen you decide to use the services of a South African consultant on the ground who will take you through the process from identification of your purchase to transfer and beyond.  The consultancy will cost you 2.5% of your purchase price, in this case 10 000€:

•    Your Apartment cost (includes notary fees and renovations) – 486 320€
•    Your 70% loan over 20 years at 4.1 to 4.5% – 340 424€
•    Your 30% contribution – 145 896€
•    Add loan registration (at approximately 0,5% of the loan amount) and consultancy  – 11 400€
•    Your total investment before furnishing therefore – 157 296€

You will need a further 12 000€ to furnish an apartment of this size.

Your annual costs will be approximately:
•    Tax Fonciere – 850€
•    Tax d’Habitation – 850€
•    Insurance – 140€
•    Levy – 1900€
•    Water – 200€
•    Electricity – 700€
•    Repairs and Maintenance 720€
•    Administration – 1430€
•    Total – 6790€
•    Mortgage repayments (1916€ p.m.) – 22 997€

Of course, if you decided to take a 50% loan and the renovations were not necessary, and if you covered the notary and transfer fees yourself the situation would be very different:

•    Apartment cost including notary & transfer – 426 320€
•    50% loan over 20 years – 200 000€
•    Your contribution – 226 320€
•    Total investment including loan registration and consultancy and furnishing – 249 320€
•    Mortgage repayments – (1126€ p.m.) – 13512€

What rental returns can I hope to achieve?

This is a key question, and the most difficult to answer with any accuracy. There are so many variables in terms of quality of the apartments on offer, exactly where they are positioned, marketing success, and seasonal fluctuations in the rental markets to name a few.

However we can make some assumptions and open up some options.

1.    If your apartment or villa is in a good position and renovated to a high standard, fully equipped and well furnished – but NOT WITHIN easy walking distance of the conference facilities of Cannes – then long term (annual) furnished rental is an option. However if you wish to enjoy it sometimes yourself, then occasional and summer rental can bring in some income when you are not in residence. July and August are fairly assured but any time during the remaining months would be classed as fortuitous. On annual rental your two bedroom apartment should net 1500 to 2500€ per month (to the owner’s account). Summer rentals might expect to clear 3000€ per month or a little more.
2.    If your two bedroom apartment is WITHIN easy walking distance of the Palais des Festivals in Cannes, seasonal and conference rentals are an excellent option and should net the owner about 18 000€ per annum. There are about eight major conferences and many minor ones, and of course the summer holiday market too. There are distinct advantages to buying your investment within this “golden circle” in Cannes because although properties are more expensive, their resale value is commensurate. Furthermore, the apartment is lightly used so repairs and replacements are minimal over the year. Many conference delegates arrive on Monday and leave on Friday and you wouldn’t know anyone had been there as all they use it for is sleep. Wear and tare is very slight. Summer (family) and annual rentals can be much harder on the apartment.

You can see from this that rental income can comfortably cover your running costs. However, the ability to cover your mortgage repayments too will depend on the amount you choose to borrow, but as a rule of thumb, if you borrow 50% then you will be close to breaking even. If you borrow more than 50% you will have to plan to introduce some funding from time to time, especially in the earlier years.

One of the subjects to be covered in the next “Postcard from the Riviera” will be the management and administration of properties in France for owners who are far away and may visit only occasionally, or not at all.

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