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Philippe Favre 04.29.08, 6:00 AM ET - Philippe Favre is the chairman and CEO of Invest in France Agency.
As the Forbes Misery Index notes, France has actively made considerable tax reductions--the second-highest improvement for reforms in Western Europe and the fifth-highest improvement in all the countries covered by the index. Several key reforms that improve the attractiveness of France from a tax point of view continue to allow it to remain the third-largest recipient of foreign direct investment in the world.
The current French government is not resting complacent--it continues to strive to improve the environment for businesses with some of the most generous and innovative tax credits available. Reforms in early 2008 included a limitation on overall taxes for taxpayers, research and development tax credits for business and favorable tax credits for charitable contributions.
The 2008 tax credit for research and development that reimburses 50% of the R&D expenses for businesses in the first year has no equal in the world. It is particularly interesting in that it represents a direct credit to income tax, and if it is in excess of the income tax, it can even be refunded in cash.
The wealth tax credit, also increased in 2008, is driving investment into small and medium enterprises, public research institutes and charitable foundations by allowing households to deduct 75% from their wealth tax of qualifying investments or charitable contributions, up to a maximum credit of 50,000 euros per year.
Finally, for individuals the total amount of progressive and flat income taxes, wealth tax, property tax and mandatory contribution to social security is now capped at 50% of the taxpayer's total income. The progressive income tax is capped at 40%, equal to the top rate in the United Kingdom. For overtime work, employees are completely exempt from paying income tax and social security charges, and employers pay reduced social security charges, since Oct. 1, 2007.
While (at the time of writing) we haven't seen the impact of recent events at Societe Generale, in terms of the crunch the French market has suffered less than many others. An overwhelming majority of French loans are fixed-rate, and the banking sector's strict requirements has helped minimise the impact of the credit crunch on the domestic market.
Nick Leach, head of business development UK and Ireland for P&V Property Investments, says: "The French lending market is largely unaffected due to the strict mortgage qualification criteria based on an affordability model (rather than an income multiple formula or self certification) and the need to qualify for French life insurance - something that proves difficult if you are overweight, old or unhealthy."
Richard Exton, director for Barclays Buying Abroad, agrees: "The credit crunch will have less of an impact on France mainly due to the fact that banks must be able to provide evidence that their client is able to afford the mortgage commitments because they meet the affordability calculation that applies. Non-status and self-cert mortgages have not existed in France and most French residents take a repayment mortgage on longer term fixed rates. Interest-only mortgages have just recently been introduced- in France as a result of demand from Brits buying property."
The latter marks an important shift in the way banks approach finance in the country, with more innovation also added to the portfolio of products over the past few years. Tahminae Madini, MD of France Home Finance, explains: "In France, mortgage lending is strictly based on the debt to revenue ratio. While this means that it can be more difficult to obtain a French mortgage, it is also the reason that the French banking system is so stable. Bur it can be traumatic for overseas buyers to deal with the French banking system. The banks in France do a full study of your finances, so if you are not French, this process can be more complicated. French banks are cautious animals but we have worked hard to train our banking partners.
"All Europeans buy property in France. The Dutch and the Germans buy everywhere, with the Scandinavians, Italians, Swiss and Spanish tending to prefer the south Australians and Americans are entering the market more year on-year" Trisha Mason, VEF.
"However, in the last three years there has been a real shift in the attitudes of banks, and they are getting better at innovation in product. One we saw in 2007 were products that protect the value of currency. Some banks now offer loans in Euros, but allow you to make the initial deposit in your own currency."
With a stable property market and banking sector innovation, France looks set to continue as a good bet for buyers - and therefore agents who sell it. In 2007, France beat Spain to top place in The MoveChannel.com's 'Top 10' list for the second year running, attracting 20% of all buyer enquiries or 750 searches a day.
Regionally, the Paris market is one that is proving popular with buy-to-let investors, particularly apartments which offer the prospect of good rental returns and solid appreciation.
David Cox of Property Frontiers says: "Regeneration around La Defense and house prices rising at an average of 11% since 2001 are both contributing to Paris' success. Despite rising prices and capital gains, homes are still affordable. Moreover, there is a severe shortage of rented accommodation, and the city is never short of prospective tenants. The gross rental yield is currently running between 4.5% and 8% per year:'
He recommends buyers choose popular areas - "central locations appeal to local professionals, whilst tourists tend to opt for areas such as the Latin quarter, or Montmartre" - and notes there is now also a good rental market for suburban houses, perhaps facilitated by the sheer pressures of living in small Paris apartments.
Galenya Dubois from Flat Hunter agrees: "The sustained housing shortage in Paris represents the opportunity for top returns on real estate investment."
"Rental returns remain high as Paris maintains its position as the number one global tourist destination and the new high-speed train link has further increased its attraction as a weekend get-away."
Danny Silver, MD of Property Direct France, also tips Paris as a good buy for investors -alongside other city locations: "My advice is to stick to the metro areas, such as Paris, Lyon, Marseille, Toulouse and Bordeaux."
For those looking for evidence that the worldwide credit crunch is not quite so worldwide as some might think, the best place to look, it appears, may be across the channel, which, as a major hotspot for Britons looking at buying investment property, is just as well.
As Assetz made clear this week, the country has survived the liquidity crisis fairly unscathed. This is thanks partly to French Banks suffering far less from the subprime crisis due to lower levels of investment in affected companies and also because the reaction has been to stimulate the market by offering more enticing deals, in stark contrast with lenders in Britain.
These explanations were offered by Matthew Weston, overseas mortgages manager for Blevin Franks, who stated: "So far this year the subprime crisis has had little to no impact on the non-resident France property investment market in France."
However, wider evidence seems to suggest that this avoidance of the financial problems that have blighted many other economies - and consequently housing markets - is not just a phenomenon seen in the French mortgage-lending sector. In the commercial property sector, for instance, UK commercial property firm Hammerson's released its half-yearly results earlier this week. They showed that overall its assets had lost 5.5 per cent in value in the second half of 2007, but the company was bolstered by a 16.5 per cent rise in the value of its French assets last year.
Speaking to Reuters, chief executive John Richards said: "Having nearly 30 per cent of the business in France has been extremely advantageous," adding: "France will not be entirely insulated from economic slowdown seen across Europe, but any downturn is likely to be more muted than in London. Values are stable not falling."
So if the economic and property situation in France, both commercial and residential, is looking up, where might the investor go? Much of this depends on the market they wish to serve. Some Britons, either wanting a weekend retreat or simply a holiday home, may let out somewhere far from the crowds - and their countrymen.
Other places, however, have developed sizeable expat communities. Recently, for example, the Daily Mail reported on the region of Dordogne, a name famous for wine but where the treading of grapes may be no more common a feature of a summer's day in some places than the sound of leather on willow.
Any investors looking in places like this for buy-to-let must of course be sure there is demand and that lies mainly in the major city areas – ie Paris and Toulouse.
The last few days have seen plenty of gloomy headlines about the UK and US property markets, with predictions of crashes, rising repossessions and falling mortgage lending. In contrast, it has been argued, the prospects seem particularly healthy for France.
Such an argument has been taken up by VEF and other EU studies, which reports that our nearest continental neighbour is enjoying a rise in prices and popularity just as the UK slumps. It notes that the story it has picked up in the UK press - from the Times - admits that things may not be so bad in the UK and strongly suggests the press is trying to "sensationalise" the idea of a crash.
Even so, VEF notes, the prospects for France do look good and the number of foreign property investors are growing. It quotes the Financial Times saying that the British, Dutch and Germans have been buying up holiday homes in France at a "remarkable rate", with an estimated total of 500,000 Britons owning properties in the country.
The article adds that in the light of predictions for a decline in UK & US prices (however reliable or otherwise these may be), the prospect of a further increase in demand for French properties "does not seem unreasonable".
Even so, states another recent Financial Times revelation - that worldwide prices had fallen but in France they had risen - does suggest that the country offers a sounder investment than some locations. Part of that may be down to some new markets turning out to be less profitable or sustainable than suspected, but there are some excellent examples listed by the Financial Times in their report especially the city regioans of Paris; Toulouse; Bordeaux; Marseille and Lyon.
But there are other factors boosting France too. While Ferries and the Channel Tunnel offer two options for travel from Britain particularly between southern England and northern France, the number of low-cost flights are also increasing, raising the prospect of increased tourism and thus investment opportunities. France won't need Britain, USA, or anywhere else to slump in order to go on thriving.
thanks to continued demand from foreign investors, SPC Overseas claims.
The property investment company told Homes Worldwide that there are several mini growth markets in France where prices are finally beginning to catch up to the rest of Europe.
Anthony Fernandes, director of SPC Overseas, explained that France's popularity among holiday home buyers has led to a shortage of new properties, which is pushing prices up and creating a very "ripe" climate for investors.
"The next ten years will see France play catch up to other European markets and investors can expect to see tremendous returns," he remarked.
Your Mortgage magazine also sees this trend in France, explaining that western European countries are now seeing a price boom similar to that experienced in the UK over the last decade
A million British pensioners are receiving their state allowance from overseas, according to new figures from Saga.
France and Spain continue to feature as the destinations where British pensioners would most like to live after their retirement.
A recent Bank of Scotland International (BOSI) survey found that the two countries are the most popular countries in Europe to retire in, among the 31 per cent of pensioners who have considered moving abroad.
But France has become more popular with Brits than Spain because there are fewer established expat communities to annoy them, according to an overseas mortgage adviser.
Matthew Weston, manager of overseas mortgages at Blevins Franks, said that people were looking for a cultural experience and a change of lifestyle rather than a Little Britain Abroad.
"Normally what people are looking for is a peaceful home set in natural surroundings that is in close proximity to a local scene that has a good dose of its own unique culture and entertainment," he said.
A Cluttons France spokesperson said that the France was becoming very popular with a higher class of Brit who did not want to see "an English man wearing his football shirt in France".
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