Mark Lightfoot of SnowOnly recently sat down with James Ross from Erna Low Property to delve into the intricacies of purchasing ski real estate in the French Alps. Their discussion covers a wide range of topics, from the initial costs of buying property to the benefits of new developments and ensuring trust with property developers.
Who Will Benefit from Listening?
- Potential buyers interested in ski real estate in the French Alps
- Investors seeking lucrative property opportunities in ski resorts
- Individuals wanting to understand the costs and processes involved in purchasing ski properties
- Those considering rental income from ski properties
James Ross shared his extensive experience in the French property market and the heritage of Erna Low Property. With a history dating back to 1932, Erna Low Property has built a reputation for trust and reliability, specializing in ski properties across France.
Key Areas and Developments
The conversation highlighted the key areas where Erna Low Property operates, including Les Arcs 1950, Paradiski, Portes du Soleil, Méribel, Courchevel, and Tignes. These areas are known for their attractive investment opportunities, both in new developments and resale properties.
Costs of Purchasing
New Developments One of the main advantages of buying new build properties in France is the lower notary fees, which range between 2-2.5%. This fee covers all legal costs and property taxes. Additionally, buyers can reclaim the 20% VAT if the property is rented out, significantly reducing the overall cost.
Advantages of New Builds
New build properties offer lower upfront costs and potential for high returns. The ability to reclaim VAT makes these investments particularly appealing. The discussion emphasized that while resale properties have higher notary fees, new builds provide better financial incentives and lower initial expenses.
Rental Management and Ongoing Costs
James detailed the costs associated with rental management, which can vary between 20-40%. Ongoing costs, including service charges, utilities, and maintenance, are generally lower in France compared to the UK, making property management more affordable.
Selling Property
The podcast also covered the costs and considerations when selling property. There are no significant penalties for selling after five years. If the property is under a rental management agreement, the VAT obligation transfers to the new owner, ensuring a seamless transition.
Stage Payments for New Developments
When purchasing new developments, buyers typically go through about eight stage payments, starting with a 2-5% deposit held in escrow. These payments are made as construction progresses, with the final 5% paid after snagging is completed.
Developer Trust and Security
Ensuring trust and security with property developers is crucial. Erna Low Property works with trusted developers with a proven track record. In France, new build projects must sell 50% of units before construction begins, providing financial stability and assurance for buyers.
Main Takeaway Point
The significant cost advantages of purchasing new build properties, including lower notary fees and the ability to reclaim VAT, make them an attractive investment in the French Alps. This episode provides invaluable insights for anyone considering buying ski real estate, highlighting the benefits and processes involved.
Transcript
Mark: Here we are, back with another SnowOnly podcast. We're looking at the costs of buying ski real estate in France. Today we have James Ross, who is the sales specialist from Erna Low Property, specializing in ski properties in France and the south of France. Is that right, James?
James: That's it, Mark. Hi, good to see you.
Mark: Good to see you too. So we're going to cover the costs of buying ski property in France. Before that, James, just give us a little bit of background on your experience, a little bit about your company, and what you do there. Over to you, James.
James: Sure, thanks Mark. I've been working in French property, especially ski property, for over a decade now. I've seen a lot of changes, but it's still a great investment for the right property in the right area. There are fantastic developments going up all the time. Speaking to the right people and making sure you're dealing with people you trust is very important at the moment. Erna Low Property has a fantastic heritage. We've been around as a company since 1932, originally started as a ski tour operator, and the property arm of that has been around for over 20 years. A lot of our clients go skiing, stay in these fantastic properties in the French Alps, and then want to buy similar properties, so they come to us, and we help them out. Our heritage is long, we have a great trusted client base, and what you get from us is a very unique experience. Buying from a small family company, you get trust implicitly from the beginning, and we hold our clients' hands right from the beginning through to the end. We have clients that we speak to five years later whenever they want to sell their property; they always come back to us because they know the service they get is reliable and trustworthy.
Mark: Perfect. James, while we're chatting, which areas do you tend to specialize in, in the French Alps?
James: We've got an office in Les Arcs 1950, which is a very strong base of ours. A lot of our business and clients come through there. Francois Mara, the owner of the company, specializes in Les Arcs 1950. It's a very unique village, a beautiful village, built by Intrawest in the early 2000s. They went to Walt Disney to come up with the perfect ski village. Disney designed this village; they tweaked it a little bit, of course, but it's a beautiful ski destination with great skiing and a very high standard. It's a unique proposition in Les Arcs 1950, which Francois Mara would love to talk to you about one day.
Mark: Which other areas do you have new developments in?
James: Sure. All the classic main ski areas. Within Paradiski, Portes du Soleil has always been a strong base of ours. Méribel, Courchevel are areas we always want to get into. We have an apartment there at the moment. Tignes, especially Tignes Les Brévières, where we had a big development. There are some apartments coming back, but we have many developments all over the French Alps, close to airports and a bit further along. Whatever our clients want, I'm pretty sure we'll be able to find the right property for them.
Mark: Good. Okay, let's get into it, James. Imagine we're talking to someone just starting their ski property search. They're doing a bit of research. Maybe they've found a new development. What are the associated costs of purchasing a property? What are any hidden costs? What are the costs based on? I know people might want to reclaim VAT. Are there any penalty costs, etc.? The first question would be, if we're looking at new developments, what are the costs of purchasing a property in a new development?
James: Sure. There are certainly advantages to purchasing new build property in France, and that's essentially the property purchase tax you pay at the outset. In France, the equivalent of land tax or stamp duty is the notary fees. For new build property, that's between 2-2.5%. That includes all your legal fees and property taxes rolled into one. Your notary will take a cut of that, and then the government will take a cut as well, split up between different areas. Essentially, it's no more than 2.5% of the purchase costs, including VAT. That's what you'll pay for your property. It's different from the UK, where you're paying 5% or more as you go towards a million pounds. It's much lower in France for new build property compared to the UK.
Mark: And this is irrelevant to the cost of the property, whether it's 250,000 or 10 million, still 2-2.5%?
James: That's right, 2-2.5%. Once you get over 1.3 million, you get into a wealth tax, but let's not get into that now. For new build property, it's 2-2.5%. There are no additional hidden costs. You won't find someone sending you a bill for another percent that has come from somewhere. That's it, 2-2.5% notary fees. If you're getting a mortgage, that's slightly different, and perhaps we should cover that in another podcast because there are a few costs associated with it. But for property purchase, it's 2-2.5% for new build property.
Mark: One thing you mentioned earlier is that the 2-2.5% is based on the property price plus VAT. Now, I know you can reclaim VAT if you put it into a rental. So, the 2-2.5% is based on the price plus VAT, not after you've deducted the 20%?
James: That's right. It's always based on the purchase price including VAT because a lot of the time, the property either won't be eligible, or the owner won't want to reclaim the VAT. If you're buying a property in the French Alps and you want it as your second home, you're obviously not going to live there. If you want it as a rental to give you income to pay for the mortgage and charges, you can reclaim the VAT. This can only be done on new build properties, and it has to be from the outset. It can't be lived in from day one and then you reclaim it. You reclaim the VAT right from the beginning. All you need to do is have a rental mandate with an organization or a local company who will take on the rental management of that property. You need to provide three things: the cleaning of the property, the linen change, and a key handover. You get a certificate from the rental mandate or rental company contract. You send that to the French government, showing that your property is a rental, and the French government will reimburse you the 20% VAT you paid on purchase. They do this because France is a huge tourist destination, not only for foreign nationals but also for French people who go on holiday in France and ski in France. The French government allows you to reclaim the VAT by rewarding you for making your property a rental property because they want beds to encourage rental and boost the local economy. It's a win-win for everyone, so it's a great system. Many of our clients do it. If you're only going to use the property two or three times a year, why wouldn't you do it?
Mark: Actually, I have a quick question, slightly off-topic. If you take a developer that has a compulsory leaseback, allowing you an allocated certain amount of weeks and you lease it back to them as a developer, can you still reclaim the VAT with a local rental agent if you have the mandate? How negotiable is that mandate with them, allowing you to use it as much as you like? What are the terms for reclaiming the VAT if you want to use the property for more time in high season?
James: That's a good question. We don't deal with a lot of leasebacks anymore as the model has slightly changed. If you buy a property with a leaseback company, it's difficult to change that arrangement. You're in it once you're in it. Some leaseback models allow a certain allocation of weeks per year, such as two weeks in high season, medium, and low. It's how you balance your own usage with rentals. Obviously, the more you use the property in high season, the lower your rental income. If you buy a standard property, a classic freehold, and put it up for rental management, there are no real restrictions on how you use it. You can use it quite a lot, but the more you use it in high weeks, the less rental you'll get. The stipulation is you can't use it for more than six months, as then it's considered your main residence and not a second home. There would be an issue with reclaiming the VAT. A rental management company would want to rent it as much as possible, so there would be a negotiation. It's quite fluid and not restrictive. How much skiing can people really do with jobs and families? It gives you flexibility.
Mark: What are the costs of using a local rental management company? What are the ongoing costs of your property?
James: There would be a fee to the agent, which can vary. It changes from agent to agent, ranging from 20-25% up to higher percentages like 40%. It's all part of your negotiation. If your property is very desirable, agents may compete to rent it. We would help you with the negotiation and set up the rental mandate, introducing you to the right rental companies to ensure you're looked after. Ongoing costs include service charges, which I've found to be lower in France than in the UK. For a good two-bed in a good resort, service charges can range from 1500 to 2500 euros a year, which is less than the equivalent in the UK. You'd have water, gas, electricity, and Wi-Fi on top of that. Energy costs in France are lower than in the UK, making it very manageable. If you've got a good rental and use the property during high season, you should get a nice return, covering your mortgage and costs.
Mark: Is there an equivalent in France for looking after the common areas of the building if you're in an apartment?
James: Yes, it's essentially a syndicate. There's no leasehold in France, just freehold co-ownership. If there's a development with 20 apartments, you'd own a proportion of the co-ownership. Every year, there's an AGM where all owners vote on service charges and changes. It's very democratic and transparent. A syndicate manages the property, and you have conversations with them. It's not opaque like in the UK, where leaseholds can be archaic. In France, you're much more involved with the management company and have a say in what happens.
Mark: What are the costs if people want to sell their property? Are there any penalties for selling early or flipping properties before the development is finished?
James: In France, the buyer always pays the notary fees, so as a seller, your buyer pays them for you. There are no penalties for flipping properties, but you need to own the property for five years to avoid penalties. After five years, there are no penalties. If you have a rental management property, you need to own it for 20 years to keep the VAT you reclaimed. If you sell it before 20 years, the new owner takes on the VAT obligation. Selling a property has no real fees apart from agency fees, which are slightly higher than in the UK, but negotiable at around 4-5%.
Mark: If you wanted to sell before five years, are there any penalties?
James: Yes, that's the capital gains tax in France. If you sell before five years, you pay full capital gains tax. After five years, it's on a sliding scale up to 22 years. The longer you own the property, the less capital gains tax you pay.
Mark: Let's flip over to resale properties. The notary fees are slightly higher for resale properties. What's the fee for that?
James: It's slightly higher for properties over five years old, between 7-9% for notary fees, covering your legal fees and property taxes. There's a big difference, which makes new build properties attractive. New builds have reduced notary fees to boost the economy. The only difference between new builds and resale properties is the notary fees; ongoing costs remain the same.
Mark: When you say resale properties have a 7-9% notary fee and new builds have 2-2.5%, when you go to sell it five years later, the notary fees are 7-9%. Is that correct?
James: Yes, but that goes to the French government. After five years, the notary fees increase for resale properties over five years old. It's a significant difference, which is why British buyers tend to buy new builds. They get VAT back and lower notary fees. In Les Arcs 1950, built years ago, you're paying higher notary fees but getting a different proposition with ski-in/ski-out properties and high rental yields. You can use notary fees to negotiate on the price, getting a deal in both scenarios.
Mark: From a sales perspective, is the fact that people buy new developments because of the low notary fees and VAT reclaim a good selling point?
James: Yes, it makes properties much more attractive. Many people don't fully appreciate the VAT rebate option, so it's a nice surprise. Notary fees can also be a revelation. It's horses for courses, depending on whether you want a new build, want to rent it, and get VAT back. Arc 1950 has higher notary fees but is an established village with high rentals, offering a solid yield and a popular resort. Do your research, and we can run through all the scenarios and options so buyers are comfortable with what they're buying.
Mark: My son has been skiing three times now. He's eight and a half, and his favourite place so far is Les Arcs.
James: It's no secret that snow hasn't been fantastic this year. Les Arcs 1950 is at 1950 meters, and you can go straight up from there. Paradiski is huge, going over to La Plagne and down to Champagny-en-Vanoise. You can't go wrong with it; it's got it all.
Mark: Just a couple more questions. What's the typical time from agreeing a price to completion for buyers?
James: That can vary. With new builds, a lot of what I do is off-plan, so you're buying into the development idea and location. Once you've negotiated the price, depending on where you are in the build, you could be three years out, two years out, or a year out. If purchasing with cash, it could take two to three months from agreeing on the price to signing the contract. Mortgages can take longer, up to six months, especially over the summer when things are quieter. Cash buyers can move quickly, but mortgages can prolong the process.
Mark: For new developments, what's the typical staged payment schedule?
James: There are usually about eight stage payments, starting with a deposit of 2-5%, held in escrow and not touched by the developer. Payments are made as construction progresses: 15% once the foundations are in, another 10% for the first floor, 15% for the second floor, and so on, with the last 5% for snagging. Once snagging is completed by an independent inspector, you pay the final 5% and get your keys.
Mark: One more question. How do you recommend ensuring trusted developers complete the developments? What assurances do buyers have that their investment is secure?
James: In France, the developers we work with are tried and trusted with a pedigree and track record. New build properties or developments must sell roughly 50% of their units before they can legally start the development. Most new builds are bank-financed, so once 50% is sold, the bank releases funds for construction. If anything happens to the developer during the process, the bank has a legal obligation to finish the development to the exact same plans and specifications. This ensures your money is secure, held in escrow, and the development will be completed even if the developer goes bust.
Mark: Would there be any advantage for a buyer to be one of the first in a development to get the cash flow started?
James: Yes, any development wants to get going quickly, so early buyers often get a better deal and first choice of apartments. The disadvantage is needing patience to wait for the 50% of buyers to come in before the build starts. It might be quick or take longer, but the payoff is a better apartment and potentially a better deal.
Mark: James, thank you so much. Otherwise, I'll ask another hundred questions. Thanks for answering all the questions. I'm sure people will listen carefully to what you have to say. I'll put your details in the links for anyone who wants to contact you. Quick pitch, James. Do you have any new developments worth considering?
James: Sure, we have a new development in Champagny-en-Vanoise called La Vanoise, taking advantage of the Paradiski area. We also have a resale in Montgenèvre, a fantastic three-bed apartment in the center. We're launching new developments all the time in the south of France too. It's a buoyant market, and things are picking up.
Mark: I'll put James's contact details in. Feel free to contact him and ask any questions or find out about new developments. James, thank you very much for your time and answering all the questions. Really appreciate it. Take care.
James: You too, thanks Mark. Cheers.
Mark: Cheers.
