Investor Case Study – Paris
Hong Kong Investor targets Paris for long term ‘rebalancing’
The US dollar has marched on the euro throughout 2015, but it’s not just stateside investors making the most of currency movements. Those with currencies pegged to the dollar have also become around 20% stronger in terms of buying power.
James Tong, a Financial Analyst based in Hong Kong, has bought two investment properties in Paris over the past two years and cites the current market conditions in the capital as his main reason for investing.
“Out of all the cities in Europe I think it is Paris that has the most rebalancing to come in the future,” said James. “Price growth over the short term might be better in London for now, but I’m investing in Paris for the long term and the Paris market is currently bottoming out. Paris is a global city, and by that I mean is will always be in demand from international buyers.”
Capital Gains changes…
The recent addition of capital gains for foreign investors owning property in London also played a part in James’ decision to invest across the channel. Until April 2015, foreign investors selling London real estate paid no tax on capital gains. Today they pay between 18% and 28%.
“Taxation in France isn’t as bad as people say, in fact it can be better,” added James. “Capital gains tax in France reduces over time and if you own the property for long enough you pay nothing at all.”
The 19% CGT payable in France has a taper relief system which starts at year 6, with a 6% reduction each year until year 21 and then a 4% reduction in year 22. After 22 years of ownership the seller is completely exempt from CGT. This structure favours long term ownership, discouraging short term investments or ‘flipping’, adding stability to the market and, along with the long-term low-rate French mortgage market, is another of the reasons why Paris never saw the bubble burst like in other European cities during the 2008 downturn.
Both properties are freehold, but one is classic and one leaseback…
James bought two properties in Paris, one classic freehold and another freehold but with a leaseback management contract. The two are located in completely different areas of the city. The classic freehold property was in the sought after Latin Quarter in the 5th arrondissement and the leaseback property was located in the 13th arrondissement, popular with students because the variety of universities in that area.
“I had been keen to invest in a French leaseback for some time, but was waiting for one to come up in Paris as they mostly appear in the Alps or the South,” added James. “Very few leasebacks projects happen in central Paris, maybe one every two years. It’s a very easy way to own freehold property. There is no maintenance or management required, you sign a mandate with a company who manages and lets the property out for you full term, then it generates you an income and you receive this net of costs.”
James bought a one-bedroom apartment at ‘Palatino’ a brand new development in central Paris by the well-known French developer Terresens. “The project was created to accommodate the growing student population in this part of Paris,” added James. “The 13th has five universities and eight colleges so the demand for student property is high.”
The Latin Quarter…
The other property, a one bedroom freehold apartment (without a leaseback management lease) was also a new-build, but this time located on the edge of the Latin Quarter in Paris’ sought after 5th arrondissement.
“New-build properties in Paris are generally more expensive than resales simply because there aren’t that many,” continued James. “When these became available I had to move very quickly and worked with Athena to select the best property for me. Of course, the other reason for buying new-build is the buying costs* are also lower, 2.5% instead of 7%, which is a big difference.”
This one bedroom apartment was part of an eagerly awaited collection of properties on the Latin Quarter fringes, the first new-build development in that are of Paris for more than a decade.
Positioned off Cardinal Lemoine, the 50 apartments are based at the foot of the ‘Montagne Sainte-Geneviève’ the 5th Arrondissement’s famous hill. Between prestigious schools and the River Seine these properties enjoy an unbeatable location.
“It’s a very popular part of Paris,” said James. “Anything that’s close to the Seine and fairly central should perform well. It won’t be finished until 2018, but by that time I hope it will have increased in value anyway.”
These apartments are also near to both the heart of the Latin Quarter and also one of the Seine’s two islands, the Ile de la Cité, home of the iconic Notre-Dame Cathedral.
On Athena and the buying process…
“When buying properties in Paris I would strongly recommend using a company like Athena. This is especially important when buying new-builds as they move so quickly, sometimes being sold before they make it online.”
They also cut out all of the hassle with the buying processes, having someone who knows the quickest way to get things done is invaluable.”
*Buying costs in France are known as Notary Fees, account for the stamp duty costs and also the other associated buying costs such as solicitor’s fees.