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France

Executive summary.
France is the 3rd country of destination in Europe for foreign direct investment in real estate behind the UK and Germany. Despite that the cost of transaction is deemed relatively high, compared to other countries, the interest for real estate in France is not abating since it is a mature market, open to foreign investors. Sell off from French investment companies during the financial turmoil has created opportunities to invest in core assets in the Paris area at a distressed price where international investors have secured their investment.

 This paper will try to focus on sectors for FDI in French real estate. We advise clients to search for qualified opinion from their tax attorney about their own personal circumstances.
The residential market
Why is France popular for FDI in residential housing ?
⁃ First of all because the country is the EU first touristic destination (80 million visitors) which means there are a wide array of people interested in buying a family summer house in France.
⁃ The country has a backlog of valuable historic houses (old castles, aristocratic piles, ancient pictoresque houses..) which are affordable.
⁃ There is also a stock of lands for developments as compared to other more constrained countries and there’s no restriction in acquiring them.

Of course not all French regions are equal with regards to FDI in residential estate and some destinations are more favoured than others : Paris (for its international attraction), South of France (Sun is obviously a great factor) with its fashionable hotspots, healthy climate and warm sea.
Besides buying properties in a foreign country , a daunting process for many would be acquirer, there are numerous safety in place :
⁃ Title to land registry is fully functional
⁃ Sales and conveyances are registered by notaries public who have a legal monopoly on them as appointee from the government.

Investing in commercial real estate
Transactions in French commercial real estate are dwindling due to the on-going crisis and some of the big players are retreating (notably German investors which suffered investment losses in their home country). They have been however replaced by other international investors, the most prominent being from Middle East.
The market is concentrated in Paris and its close suburb which dominate FDI in this sector although other Metropolis (Lyon, Marseille…) are tailing it. However there are opportunities awaiting investors if they are keen to take a mid to long term view on commercial real estate with the rationalization of business parks and the French regions taking the upper hand in local development. France is part of the European hubs in airspace industry, science parks and poles of excellence are developing around cities such as Marseille and Toulouse (airspace), Montpellier (Science and medicine), Bordeaux (airspace, medtech)…Cooperation between universities and private sector firms are now on a firm footing to create adequate climate for future growth

Investing through pooled investments
Pooled investments are rarely offered to foreign buyers because real estate agents do not have the expertise or size to become truly asset managers. Moreover it will require a prior approval from the finance supervisory body (protection of investors), although this can be offered to “qualified investors” (with an expertise in risky investments). However we have identified some growth markets where pooled investments can be efficient:
⁃ Intermediate housing : there is a shortage for renting accommodation between social housing and private market (most notably in large cities) at an affordable rate for middle class. Currently the yield such investment can produce is about 6% gross p.a.
⁃ Retirement homes : with a growing ageing population there is a need to provide homes with services for the future. The state and local retirement homes are in need of strong rehabilitation and present a diverse structure of buildings which affect cost.
We are considering creating a group of retirement homes (based on an easy to replicate architectural project) in the South of France. Each home will have 90 rooms (from 1 room to 2 bedroom flats), communal space, visitors area…etc. The homes will then be managed by a specialised firm on an operating lease. The exit strategy will be either to sell the portfolio as a whole or to sell units to private investors (they enjoy tax breaks for investing in such estate).