Buying foreign property "not a rich man's game"

You don't have to be super-rich to own your own bricks-and-mortar in Europe, South Africans are finding in France.

Ever had wistful thoughts about spending long summer evenings in your own cottage overlooking a vineyard in a Burgundian village? Or wondered about the profit potential of a trendy Parisian pad?

You don't have to be super-rich to own your own bricks-and-mortar in Europe. Nor do you have to be on site to go property hunting. You can search via the worldwide web and rely on experts in South Africa to check through the paperwork and generally safeguard your interests.

Case in point: about two years ago, visitor John spotted a modest apartment high on the slopes of his favourite French ski resort, Méribel, on the internet. Some months later, and sight-unseen, he'd transferred the cash to take ownership.

John's visited the place since then. Aside from the grotty, 1970s-brown bathroom, the small flat is, as the agents said it would be, in a prime position on a piste. No doubt that has been an important ingredient in ensuring the apartment has been fully booked for his first two ski seasons since he snapped it up.

An added bonus for Cape Town-based John is that he bought when the rand was teetering around 8 to the euro. Depreciation of the rand has meant that in local currency terms alone John has enjoyed a nice return on his French property so far.

"This was a long-term investment. I wanted a place that my family could use occasionally, while also generating an income in euros," says John of his decision to buy in a region he has visited several times over the years.

Not a rich man's game

Now John's not what you'd call a high net worth individual. He made some money on a local property sale, and shifted R650 000 offshore to diversify his portfolio with the French acquisition.

For that price, you would be hard-pressed to find a studio on Cape Town's Atlantic seaboard. Suburbs like Ysterplaat, a poor, former whites-only area in the Mother City, are where you are more likely to find bricks-and-mortar in that price range.

"I was amazed to find an apartment in my price range, and then even more amazed that it seemed likely I would be able to buy it," reflects John.

He contacted a local lawyer with expertise in French property to steer him through the transaction and check all the paperwork to ensure that the property did exist and to help identify any pitfalls.

According to agents, lawyers and consulate sources with insight into the South African interest in French real estate, John is among a growing group of South Africans who have been purchasing property in France in recent years. Some invest directly, finding their own properties and rental agents while visiting the country or over the Internet. Others enlist intermediaries here and in France to help source and manage their properties from afar.

Increasingly, too, local estate agents are teaming up with foreign players to sell offshore offerings to South Africans who would like to diversify their personal assets. Invitations to presentations on real estate developments elsewhere are being snapped up enthusiastically, thanks to negative settlement that recently descended over the country.

Risks and rewards

Azur Accom's Guy Watson-Smith, among those who specialise in selling to buyers from Southern Africa for a fee, says he has hundreds of South African people interested in the French property market on his mailing lists. "French property is popular with South Africans as soon as they realise a couple of things: firstly that they can get finance there; and, secondly, that we do have the infrastructure to manage and care for their properties and the administration of them."

In Europe, finding yourself with a squatter living in your property is a possibility. However, says Watson-Smith, provided your apartment is let furnished, your rights as an owner should be protected.

Watson-Smith has a special focus on Cannes, where entry level properties on his books can generally be bought for a deposit of R1m - R1,5m. "Assuming that to be a 30% deposit, we could be looking at a property with a value of R3,3m," he says.

Judging from the photos, those apartments are on the small side. You'd get a lot more for your money in South Africa in the average suburb, though definitely not in an equivalent location - like Clifton where flats are going for many millions of rands these days.

Investing in another country can be intimidating - not least of all because laws and and purchasing procedures can be so different from what we have back here in South Africa. Some agents can help you with the legal stuff, as much of it is standard and routine for them, though generally it is probably a good idea to hire a lawyerl to check things over for you.

Legal expertise

Raoul le Breton, an advocate in Cape Town who is fluent in French, has acted for buyers and sellers in South Africa on a range of transactions from chateaux to bachelor pads. As he notes, laws vary even from region to region in France.

In the Savoie area, for example, you may find the local municipality has first option to buy a property - even after you have put in an offer.

Le Breton says there are two stages to a property transaction in France. The first step is to sign a compromise de vent, which is similar to an offer to purchase in South Africa but not quite as binding.

Ownership is transferred later at the signing of an acte de vent, which must take place in front of a notaire in France. Normally the buyers and sellers do this in the presence of the notaire, though they can use a power of attorney to have another party represent their interests.

Expect to go through a formal signing procedure, as your signature must be authenticated if you opt for power of attorney, points out Le Breton. It can be expensive at a consulate, though it's obviously cheaper than flying out to France to attend the signing ceremony yourself. Authenticating at the consulate is the consulate is the "safest" route, says Le Breton.

According to Watson-Smith, buyers can also authenticate their signature with a South African commissioner of oaths. But don't expect them to understand and talk you through the fine print - unless they speak fluent French.

It is normally the seller's prerogative to appoint a notaire, who is an officer of the state. The purchaser can appoint a notaire to represent his or her interests, in which case the notaires share the fee, says Le Breton.

Tax planning

Other areas of the law that can prove tricky for South Africans include tax, although there is a double taxation treaty between the two countries, so careful planning may be required before signing for a property.

There is Capital Gains Tax (CGT) if you sell in the first 15 years of owning the property, says Le Breton. Also don't forget that there's a special tax for wealthy people who reside in France and have net assets of more than euro 750 000 (click here to convert to the rand at today's rate), he says.

Other taxes you can expect to encounter, says Le Breton, include: income tax, if you are receiving rental income; Taxe Foncière (like rates), which is paid by the owner; and, Taxe d'Habitation (for services) which is paid by the occupier - whether tenant or owner. Retired people may be eligible for a reduction or exemption, says Le Breton.

There is also inheritance tax, but perhaps even more of a mine field than the tax upon death are the succession laws. Your children cannot be disinherited, and sons can end up acquiring ownership of a property together with a widow.

You may be fine with that - or you may want to arrange your affairs so that your property is passed on to your children when it suits you. For the latter, expect to have a French will, among other things.

Or, says Watson-Smith, you could opt for a small custom-made limited liability company. "An SCI (Societe Civil Immobiliere) can provide solutions," he reckons.

Don't forget about the French bureaucracy, which Le Breton tactfully describes as omnipresent. Be polite and patient at all times, and don't plan to conclude any business in August - the annual holiday month for most French nationals.

Investment decisions

Another ingredient not to be overlooked is whether the French market is at a place in the cycle that makes it a great time to buy. Like other developed world nations, house-price growth has slowed in the country as it has elsewhere.

Also know that if you're looking for a quick, profitable punt, a French property is not a good idea. Regardless of market fundamentals, the administration makes property there decidedly illiquid if you are in a hurry to shift or access funds. Plus, long-term investors reap the benefits by not paying CGT on the early sale of a property.

As Watson-Smith says, France is not for speculators; it's for investors who want to make sure they are growing their assets in hard currency and who have time on their hands to reap the benefits.

What would John say? "One of the best investments I've made. I have no regrets so far. The rental agent has been efficient and I don't have mortgage finance over the property, so I have had no worries about covering costs. Plus, I plan to go skiing some time soon." When it comes to French property as an asset class with great potential for South Africans like John, it seems to be a case of vive la France!

Article by: Jackie Cameron -