How do expats buy property in Paris?
Real estate in Paris is surprisingly less expensive than you might think. Compared to other major cities—London, New York, Tokyo—it’s actually fairly cheap. There are a few reasons for this, and they all revolve around banking. [Contributed by Paris Living]
First and foremost, there is no major financial sector driving up property prices in Paris. Without big investment banks, the lack of millionaires and billionaires is a great thing for us.
The second reason is ultimately about the French attitude towards money, and it boils down to one word: credit. I’ve lived in Paris for 14 years, and I don’t have a single friend who has a credit card. Everyone has debit cards with MasterCard or Visa logos, but not credit cards with spending limits and interest rates where you have to pay a monthly bill.
The only credit that people commonly use, in order of prevalence, includes car loans, mortgages, and sometimes consumer credit. To get any of these loans, one must apply through a bank.
When a French borrower goes to the bank, how does banks assess their debt capacity? Remember that hardly anyone uses credit cards, and no credit cards means no credit scores.
As you might imagine, and true to the French tradition, it involves a mountain of paperwork: entire employment/work history; documentation of all monthly outlays; full banking history, including whether one’s checking account has ever been overdrawn, and if so, by how much and how frequently, ad nauseum.
French banks are risk averse. There is no flowing credit as in the US or the UK, where most people have several credit cards and have refinanced their houses a few times. The European Central Bank is trying to stimulate credit by imposing negative interest rates on banks holding cash, but French banks remain tight with their loaning practices.
It’s a fair generalisation to say that in France, people spend what they earn and not more, unless it’s for a house or a car. Consumer credit is rare, expensive and, frankly, looked down upon.
How does this impact real estate in Paris? It keeps downward pressure on prices. Remember, most property in Paris and the rest of France is sold between locals, not foreigners, and so they are all dealing with the same credit constraints and inelastic budgets; moreover, they are all sharing the same mentality about money.
This is not to say, however, that expats cannot get a good property loan in Paris and take advantage of very low interest rates. In fact, you should. Because once you’ve sunk your cash into a property in Paris, you can’t take out that equity. Home equity loans are extremely uncommon in France.
The European Central Bank has a goal of getting inflation back up to 2 percent. That road is long, so rates will remain low for the foreseeable future. And there are great English-speaking mortgage brokers in Paris that specialise in getting financing for expat buyers.
An alternative to a French property loan is taking out a line of credit in your home country to finance the purchase of your property in Paris. In effect, that makes you a cash buyer, allowing you to negotiate prices from a stronger position.
The last reason why owning real estate in Paris is relatively cheap is low carrying costs. Monthly maintenance and annual property tax are incredibly low. An average one-bedroom apartment might pay USD 150/month in homeowner’s association fees, and USD 650 per year in property tax. That means that renting out an apartment is very lucrative, because the potential margins are huge.
For all these reasons and more, smaller units (studios and one-bedroom apartments) in central Paris get snatched up on a daily basis, which is reassuring for future resale—though all these reasons are good when investing in real estate in Paris.
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