NEWS ARTICLE: City living: A romantic pavement cafe in Paris

(Hazel Davis, The Telegraph, 17 November, www.telegraph.co.uk)

Hazel Davis points the way for the British investor in the French capital

Who hasn't imagined waking up to the smell of fresh coffee, a pain au chocolat on its way, La Vie en Rose wafting from the radio and the Eiffel Tower peeking over the rooftops?

Behind the romantic image, Paris is preparing itself for an economic revolution with President Nicolas Sarkozy's proposed multi-billion-pound tax cuts. What will this mean for overseas investors?

"The buy-to-let market is healthy at the moment, as Paris is still very short of accommodation," says Marie-Pierre Saint-Martin of London Paris Dream Home, a specialist independent Paris property-finding service.

" Long-term domestic lets and holiday lettings are good investments. Holiday lets are particularly interesting for investors with a bigger budget who want to use the apartment for themselves occasionally."

Knight Frank France's associate director, Jean- Philippe Roux, adds: "The preferred market for most of our foreign investors is short-term lettings in good locations that can compete with hotel rooms. The majority are buying pieds-à-terre."

The most popular places to invest remain the Ile St-Louis (where prices can reach £15,000 per square metre) and the Triangle D'Or between the Champs Elysées and the Seine.

"But there are huge differences in prices between, for example, the eastern part of Paris and central Paris," Roux warns, "so you must be careful about the average values that notaries publish."

To get a good return, he suggests that investors buy a two- to three-bedroom property, between 60sq m and 80sq m, in a good location. "Try to get the best combination of historical features and modern comforts - people want a piece of Paris - furnish it and let it short-term," Roux advises.

Doing it this way, he says, you can expect a seven per cent yield on an 80 per cent occupancy rate. Standard yield for residential property in Paris is about three per cent.

Saint-Martin reckons up-and-coming areas for capital growth include the Canal St-Martin, around the Gare du Nord and Ménilmontant.

For good rental yield, she suggests Le Marais (in the 3rd and 4th arrondissements) and the Latin Quarter, where prices average £5,000 per sq m. The central area around the Champs Elysées attracts the corporate market and prices rise to about £13,000 per sq m.

At the beginning of the buying process you will sign a pre-contract, or compromis de vente, a binding document to prevent gazumping. Ten per cent of the total cost is transferred to the notary before purchase. Property owners in France have to pay two types of annual tax: taxe foncière for the ownership and taxe d'habitation for the occupation. The owner also has to pay a quarterly service charge and impots sur le revenu (income tax) if money is earned from rental.

One way of removing the hassle of finding tenants is to buy a leaseback property - a freehold ownership in which the "head tenant" provides hotel facilities - enabling a VAT discount for owners, who are guaranteed a monthly income. Returns can be modest, and owners cannot sell for a minimum of nine years, but risk is low.

Jason Samuel from Shropshire has just bought a leaseback one-bedroom apartment for £70,000 in Vitry-sur-Seine in the Paris suburbs. He is confident the area will see a rise in the 20 years he expects to keep the property for. "At the moment it's a fairly cheap area," he says, "so it would appeal to someone coming over regularly and not wanting to pay city prices."

Keeping the apartment for 20 years under his leaseback agreement means he won't have to pay anything back. "All we do is pay the £100-per-month mortgage and the management company does the rest," Samuel says. "After seven or eight years I hope not to be paying a mortgage at all."

At the top end of the market is 81 Avenue Victor Hugo, a 33-apartment development in the 16th arrondissement, near the Arc de Triomphe. The Haussmann-era palace townhouse, which was once home to the Romanian princess Bassaraba de Brancovan, is to be transformed into 40 apartments by Conran & Partners and City Lofts, in their first joint project outside the UK.

The apartments range in size from studio to six bedrooms and all feature a Conran-designed interior and bespoke kitchen. The interior is a mix of original features (grand fireplaces, polished wooden floors) and up-to-date touches (modern storage, fitted kitchens). There is valet parking, a 24-hour concierge and a micro-gym.

Four-bedroom apartments at 81 Avenue Victor Hugo clock in at €3.3 million (£2.29 million). The additional 29 sq m studios, says City Lofts co-founder Ross Mansoori-Dara, are "perfect for staff". They are on sale for about £220,000, but only for the purchasers of larger apartments.

"We have tried hard to maintain the charm of the original apartments," says Mansoori-Dara.

For more information please contact: Emilie Lemons, Conran & Partners: cp@conranandpartners.com

November 2007