Afraid of purchasing Dordogne property due to euro crisis?

Doom-mongers abound in the present euro crisis. The collapse of the eurozone is predicted by pundits on both sides of the Atlantic. The general uncertainty has paralysed the Dordogne property market for two months. Everyone's worried about a collapse. But I'm not convinced.

Generally, the level of comment is as disappointing as President Sarkozy's production of sickly rabbits from his euro-hat. In common with many others, I have grown mistrustful of press releases announcing an instant fix. As time has moved on, the full scale of the complexity has emerged.

Why I don't believe the doom-mongers

In spite of the chorus of doom-mongers, I still don't believe them - for two main reasons.

First, none of them has focussed on the logistics - or indeed the meaning - of the "collapse" of the eurozone. Let's take it at its simplest,and assume they mean that one or more countries reverts to its previous currency: the Greeks go back to the drachma, the Portuguese to the escudo. It sounds simple enough. However, it requires the production of new notes and coins and the conversion of bank systems. In a letter to the Financial Times on December 2, Malcolm Levitt pointed out that in 1994 the working party of the European Commission Association for the Monetary Union of Europe, which he then chaired, convinced the authorities that these tasks could take up to two years, following several years of advance notice of the changeover date. A speedy change is impossible on these grounds alone, without taking into account the series of legal and financial issuees that have to be resolved along the way, such as the exchange rate that would apply on the changeover and the impact on existing financial instruments denominated in euros. In the transitional period Eurozone states would have to continue their euro borrowing in a climate of total uncertainty.

The second reason why I don't believe the doom-mongers is that Germany simply can't afford a collapse of the eurozone. The German economy is driven by manufacturing exports to both the eurozone and outside. The cost of these goods is held down by the euro. If the eurozone collapsed, the strength of the Deutschemark would be such that exports would become uncompetitively priced, damaging the German economy substantially.

As Angela Merkel has realised, the eurozone is a one-way street without turnings off.

So why's it all taking so long?

Yes, it seems as if the agony is more that of a dying than a recovering patient. But again, the level of comment has been poor. It's easy enough for Messrs Cameron and Obama to preach the importance of urgency: easy too for Christine Lagarde to do the same, though possibly with more authority and tact, from her new office at the IMF. But here are some of the problems.

First, the awareness that markets can exercise such power over national economies and governments has taken time to filter through to political leaders. At the beginning they were incredulous and bewildered. Now they are beginning to realise that the political landscape has changed. The markets' attitude to continued state borrowing is rather like that of a benevolent banker who has tolerated the extravagance of an aristocratic client for years, but feels that the point has come when he has to protect his own interests. The clients have had to adjust their thinking. But this has taken time.

Secondly, concerted action among the seventeen eurozone member states - let alone the twenty-seven EU member states - cannot be achieved easily or rapidly. If the culture and history of France and Germany are radically different, the gap is nothing compared to that between, say, Poland and Portugal or the Netherlands and Greece. Their leaders have not only to appreciate the changed political landscape but also the need to come together from their very different backgrounds to find solutions.

Thirdly, solutions are themselves not simple. The imposition of financial discipline on weaker Member States cannot be achieved without effective sanctions - not an area in which the European Union has excelled in the past. The rôle of the European Central Bank is obviously key but is likely to involve far more than the European treaties originally contemplated. Member States are going to have to increase their financial contributions at a time when their economies are already stretched. Last but not least, any closer union that involves scrutiny and approval by Brussels of member states' budgets implies an important surrender of sovereignty.

So there's the problem: on the one hand the knowledge that a eurozone collapse cannot be entertained; on the other, an environment of such complexity that final solutions will take time.

Continuing down the one-way street

In the situation I have described, volatility is likely to continue. Currency and bond traders in London, New York and Tokyo are unlikely to appreciate the finer detail. Their task is to earn a decent buck for their bosses. But my own belief - borne out perhaps by the fluctuations in short-term bond prices when member states have sought finance in recent weeks - is that there will now be an important synergy between the markets and member state governments. If a eurozone collapse is unrealistic, the markets will nonetheless provide a system of sticks and carrots to ensure that the eurozone member states navigate their continuing journey down the one way street without grinding to a halt.

In the meantime, the Dordogne property market remains moribund. What better time to buy?

Antony Mair
MCM Dordogne Property

Selling your Dordogne Property – changes in capital gains tax

The French government has now completed its reform of French capital gains tax on sales of property. How will it impact you? equally, how will it impact the moribund market for sales of Dordogne property?

The original draconian proposal

Like other European governments, the French state is strapped for cash. An overall review of tax breaks in the course of the summer homed in on the regime applicable to sales of second homes. This favoured a lengthy period of ownership, with the capital gain being reduced by ten per cent for each year beyond five years of ownership. Sales were thus free of capital gains if they took place fifteen years or more after acquisition.

The government's initial proposal, presented at the end of August, was complete abolition of this system with immediate effect, resulting in gains being fully taxable, regardless of the period of ownership. They offered a slight sweetener, in the form of an indexation allowance, by reference to increase in the cost of construction.

A compromise solution

The French Parliament considered the reform too drastic. A compromise was finally reached. The original mechanism of tapering relief was retained, but the period and the percentages adjusted.

First, the percentages: the capital gain is now reduced by 2% for each year after the fifth year following acquisition, by a further 4% for each year after the seventeenth year, and by a further 8% after the twenty-fourth year. This means that thirty years of ownership results in exemption from capital gains tax.

Secondly, the rates: 19% by way of tax and 13.5% by way of social charges, giving an overall rate of 32.5%.

The impact on non-residents

French capital gains has always applied to the sales of French property by non-residents. If the vendor is resident in a European Union member state, the rate is 19%. If not, it will be at the rate of one third of the gain. Social charges will not apply.

Although the changes in the French system will result in more French capital gains tax becoming payable, this will not necessarily increase the taxpayer's total bill. UK-resident taxpayers, for example, will be required to pay UK capital gains tax, with a right of deduction of the amount paid to the French. Although the impact will vary from person to person, the overall amount may be the same after the reform as before. The same is not true for those resident in the Netherlands, since the Dutch do not have a capital gains tax.

There is however an important effect on French-resident taxpayers selling property in the UK. Since the amendment to the France-UK double tax treaty, which came into effect at the beginning of this year, sales of UK property, exempt from UK capital gains tax for UK non-residents, became subject to capital gains tax in France. The reduction in relief for length of ownership, and the increase in the rate of social charges, may have a material effect on a UK sale under the new regime.

And the good news?

Well, everything's relative, but there are two rays of sunshine in the gloom. First, there was originally a proposal to extend capital gains tax to the principal residence. This has been abolished. Secondly, the new system will not apply to sales where completion takes place before 1st February 2012.

Impact on the Dordogne property market

The buoyant property market in Paris and other major French conurbations is at stark odds with the Dordogne and other regions of France – particularly those where the English bought in force in the good years. It is in our view unlikely that English buyers will be much influenced by the capital gains tax changes seen in isolation. The position may well be different for persons from other jurisdictions, such as the Netherlands or the United States. As part of a wider picture, however, in which we see increasing aggression of the French tax authorities in their fiscal policies, coupled with uncertainty over the economies of the eurozone countries and the future of the euro itself, this reform will not help a market that is showing little sign of life.

Antony Mair
MCM Dordogne Property

New septic tank rules for Dordogne property

Vendors of Dordogne property have had a new concern, following the introduction of a new regime for septic tanks at the beginning of this year. At the time the preliminary contract is signed, the seller is now required to produce a certificate of compliance in relation to any septic tank arrangements. If the certificate fails to state that the tank complies with current regulations, the buyer is required to remedy the situation within a period of twelve months after completion.

Who produces the certificate?

Although the vendor is responsible for obtaining the certificate, it is produced by the local authority's drainage department – the Service Public des Assainissements Non-Collectifs, known as a SPANC. In the Dordogne the SPANC is often set up by a group of communes who share the cost for this and other functions: a Communauté des Communes.

If you need a certificate you should therefore contact your local SPANC. If in doubt about how to do this, contact the mayor of your local commune.

Two points need to be borne in mind. First, the owner himself is the only person who can ask for a certificate. The SPANC will not deal with estate agents or other representatives. Secondly, the SPANC cannot deal with requests rapidly, because of pressure of work. It is likely to take several weeks for the certificate to be issued and any uncertainties clarified. Since the certificate will be needed at the time the preliminary contract is signed, vendors should contact the SPANC sooner rather than later.

Can I rely on an old certificate?

You can rely on a certificate dated less than three years prior to completion. We have found that a certificate within the three year period that is issued by the water authority, rather than the SPANC, has been accepted by the notary, since some SPANCs have only been set up quite recently.

What happens if my system does not comply with regulations?

If the SPANC tells you that your septic tank installation does not comply with current regulations, you can take some comfort from the fact that you will not be alone. Any septic tank installed more than five years ago is likely to be defective in some particular.

To remedy the system will necessarily involve expense. This will vary from property to property, but a guideline figure for a new system to be installed for a two or three bedroom house is likely to be in the region of 10,000 euros. A new system may not be required if it is only part of the current installation that is found to be defective. For example, it may be necessary to add a grease trap or extend the length of a soakaway.

Who bears the expense of rectifying the system?

The SPANC certificate has the same status as the surveys on termites, asbestos and other matters that are part of the seller's pack. It provides information. The one difference, as regards septic tanks, is the obligation placed on a purchaser to rectify a non-compliant system. The question of additional expense therefore becomes a more urgent issue.

A purchaser faced with non-compliance of a septic tank installation will need to have some idea of the cost involved, and then decide whether to proceed or to seek a reduction in price. In practice, this becomes another item of negotiation in the sale process. In the present market, where buyers exercise considerable power, vendors may find themselves having to swallow a further reduction to enable the sale to proceed.

What should Dordogne vendors do?

First, see whether you have a certificate issued that is less than three years old. If you don't, contact your local SPANC as soon as possible and ask them to inspect the system and issue a certificate. Secondly, if you then find the system is not compliant, establish exactly what will be required to make it compliant and then get a quote. Armed with this, you will be able to assess the extent to which you are prepared to contribute to the cost. Ideally, any remedial work should be undertaken before the sale, so that a clean certificate can be produced to a delighted purchaser.


Antony Mair
MCM Dordogne Property

The Dordogne Property Market in July 2011

It's been a strange year in the Dordogne - and equally strange in the world of Dordogne property. On the weather front, we had uninterrupted sunshine from early Spring to the end of June. Then - just as the holidaymakers began to arrive for their summer break - the clouds came in. The weekly concerts arranged by our neighbourhood café have been rained out for four of the past six weeks. Our local rock festival - Le Grand Souk - escaped the worst, but generally it's been pretty drear. In international politics we've been entertained by the DSK episode, on tenterhooks over Greece and the eurozone, and alarmed by the US dithering over its debt.

As for Dordogne property - we thought last year was bad, but this year seemed to be even worse. Then suddenly - like the proverbial London buses - several offers came along at the same time and were accepted. I would like to think that this is the beginning of an upturn in the cycle. However, like all lights at the end of a tunnel, it may be an oncoming train.

It would be nice to draw some neat conclusions about the state of the market. But frankly it's a bit of a lottery. Demand remains weak. On the supply side we have taken on far fewer properties than last year, leading us to think that people are holding back, and waiting for better times to come - or perhaps just changing their plans.

As for buyers, it's difficult to generalise. As you would expect with the continuing weakness of sterling, British buyers are scarcer than before. We have noticed a tendency among some prospective buyers from the UK to put in very low offers, and then to be surprised if either they are not accepted or another buyer pips them to the post. The lesson here is simple: not everyone is desperate to sell so don't think there's a clearance sale!

That said, prices are soft. There are sellers who will accept reductions of up to 20% - but it's not necessarily the norm.

The impression we have is that the predominance of UK buyers is a thing of the past: we are now showing to people from elsewhere in the eurozone as well as to prospective buyers from the Middle and Far East.

What remains a constant is the basic quality of the product. The Dordogne will always be an attractive place to live, with stunning countryside, easy access to the UK and a wealth of property that is full of character and history. Once prices have adjusted - and it looks as if we are close to reaching that point - normal service will resume.

Antony Mair

MCM Dordogne Property

The Dordogne Property Market in 2011

January's the time when everyone predicts developments in the year ahead – so what better time to look at what is likely to be happening in the Dordogne property market?

The present situation

The Dordogne property market is basically seasonal, with househunters visiting the region from the Spring through to the autumn. Start and end dates tend to vary with the weather. The "grey pound" is manifest at the beginning and end of the period, outside the school holidays, while families will take advantage of the school holidays to search as a group. So the winter months, from December through to the end of February, are usually the quietest.

No surprise, then, if I start by saying that the position is not radically different from the autumn of last year, with prices depressed and a lot of stocks on the books. That means, of course, that there are bargains to be had where vendors are obliged to sell, for personal or other reasons. In March 2007 we took on a house for sale at 649,000 euros. Under the pressure of a bridging loan, the vendors reduced the price gradually but had difficulty in finding a buyer, until they reduced the price drastically to 367,500 euros in the autumn of 2010, when it sold immediately. Another property originally started at 1,170,000 euros but only found a buyer when the price had been reduced to 712,000. In both cases the buyers had looked at a number of other possibilities and recognised a bargain when they saw it.

Prices in 2011

Statements about French property prices rising need to be taken with a pinch of salt. Paris prices have soared because of a shortage of supply. Demand on the Côte d'Azur remains good, we understand, although prices there have fallen more than agents are prepared to admit. In the Dordogne prices remain stagnant, because of the excess of supply over demand.

Part of the reason for the drop in prices was the impact of exchange rates on British demand. The pound fell at its lowest to a point close to parity with the euro. But as the pound has recovered – at the time of writing it is worth around 1.19 euros – prices have not moved. Exchange rates are therefore only part of the picture.

When the pound collapsed, British vendors intending to repatriate funds were able to take advantage of the strong euro to achieve a decent return in sterling, in spite of lower French prices. However, with the pound now hardening, those intending to repatriate funds will receive less for their euros. They may be caught in the pincer movement of a strengthening pound and a sinking property market.

In practice, the impact of the exchange rate is likely, in our view, to make prices harden, while the excess of supply over demand will prevent them rising.

Should you sell?

The Dordogne property market is not particularly volatile, so the position is unlikely to change materially over the next six months. Some commentators predict a further strengthening of the pound, to a level of 1.30 euros, so this should be factored into any risk analysis. Equally, however, predictions concerning the UK property market are fairly gloomy, so if you want to repatriate funds for a UK purchase you may not lose out.

In our view, the most important decision is how you want to lead your life. Hanging on when you want to be somewhere else may simply be frustrating and, in the long term, become unendurable. You should take a careful look at the way you want to live over the next five or ten years and then consider the price you will have to pay. Is there a downside? Is the cost worth it? only you can decide.

One thing we are certain of: any sale price needs to be at a realistic level, taking account of agents' advice. Don't fix a price by reference to what you need to buy elsewhere. Prospective purchasers are interested in the price you're selling for. Your own purchase plans are irrelevant to them.

Should you buy?

It remains a good time to pick up a deal. Prices are generally depressed, and a number of properties have been on the books for longer than owners are happy with. Don't think vendors will accept any derisory offer you may care to make. Each vendor's position will be different. Shop around and take advice. But don't delay too long over your decision to buy, since one thing is sure: the property market is always changing, like everything else. In six months or a year the position may well be different.


Antony Mair
MCM Dordogne Property

The Dordogne Property Market – October 2010

It has been an up and down year - literally - for the sterling/euro exchange rate. At the beginning of 2010 the pound began to gain in strength, moving from 1.10 euros to just short of 1.24 in June. Numerous were the sighs of relief in the Dordogne as expats felt the strain on their budgets ease a little. Some of us dared to hope that the end was near, and that the climb would continue.

Alas it did not, and we are now back to 1.14 or so.

Impact of the exchange rate on Dordogne property

British buyers, who account for a large proportion of purchases of houses in the Dordogne and Charente, are deterred by high exchange rates. When the euro is strong, demand falls and prices follow. This is why prices of Dordogne property fell by 30% from mid-2008 to mid-2010, reflecting, with slight delay, the fall in the pound from 1.48 in January 2007 through 1.35 in January 2008 to 1.04 in 2009.

After the doldrums of the twelve month period from mid-2009 to mid-2010, when all estate agents were complaining of lack of business, there was a flurry of activity in the summer, when the pound strengthened. At last, we thought: signs of improvement. But it appears that, with the onset of autumn, activity has once again diminished.

Rises in prices?

What of prices, meanwhile? There have been some self-serving articles in magazines serving the "Buy property in France" market, indicating a rise in prices in the region. One of our French vendors said that prices were climbing in Paris so of course they are climbing in the Dordogne and Charente as well.

I too have read that the price of real estate in Paris has been rising. My understanding is that this is in part due to a shortage of stock. But I am no expert on Paris property. I do know one or two things about Dordogne property, however: and if prices are not falling they are certainly not rising either. The situation is fairly stagnant.

An abundance of stock

In the period between October 2009 and September 2010 we took on some 80 properties in the Charente and Dordogne. In the two previous twelve-month periods we had taken on a mere 50 in each. We are a small agency and do not take everything on that is offered to us, so these figures are conservative. What is important is the 60% increase.

The exchange rate has done all it can to depress prices. Vendors have been able to recoup a euro capital loss to some extent by repatriating funds to the UK at a more favourable exchange rate. But we are now at a point where the sheer quantity of stock on the market, far in excess of the amount required for weak demand, is inevitably going to prolong delays in finding a buyer. As a result, vendors may find themselves inclined to reduce prices further in order to achieve a sale.

The economic outlook

The UK's economic situation is currently uncertain, with many people concerned about the impact of governmental cuts. Journalists and economists are talking about a double dip recession. Clearly there is a bumpy ride ahead, and no rapid recovery in sight.

Other areas of the world are less beset by gloom: we have been encouraged by purchasers coming from the Middle East, the Far East and Australia. There have also been a number of prospective buyers from the UK, defying the economic climate and attracted to the Dordogne for all the usual reasons. But even if demand is stronger than before, it remains insufficient to absorb the amount of property on offer.

So the outlook continues uncertain, with no easy solutions. Property well-presented at the right price will continue to sell. But many vendors will have to remain patient for a while longer before there is any material improvement.

The green, green grass

The good news is all for buyers: an abundance of choice and low prices mean that it is an excellent time to buy. Prospective purchasers we have met have all been of the view that the time is right, and have often been fortunate in having funds available. They have been able to strike good deals and join the ranks of property-owners in the Dordogne and southern Charente with enthusiasm for this beautiful part of the world and the life-style it offers. Sometimes vendors need to forget about the grass on the other side of the fence and look at their own. It may be greener than they thought.

Antony Mair
MCM Dordogne Property

Why are Dordogne estate agents so expensive?

People looking for Dordogne property who are accustomed to UK estate agents' commission of 2% or less often express shock at the amounts charged by French agents. Our own flat rate of 5% may seem high: believe it or not, we're cheaper than many of our competitors. Commissions as high as 8% are common.

To understand the different environment of Dordogne property, you need to understand the economic forces behind an estate agency. In essence, there are two: the drive to profit, pushing rates up; and the pressure of competition, pushing them down.

The upward force

While the basic job of UK and French estate agents is the same, in practice they are vastly different.

First, the French move house less frequently than the British. So the volume of transactions is smaller. Secondly, the French population is dispersed over a much larger area than the British. We take properties on within about a 50km radius of Ribérac – about an hour's drive. As a result, accompanying buyers on viewings is vastly more time-consuming than it would be in the UK.

So: fewer transactions per annum, and more time spent on each, with both buyers and sellers. Against this, the overheads of a Dordogne estate agency may well be much the same as in the UK. For those involved in international sales, indeed, they will be higher, since agents have to advertise both in France and abroad, increasing the overhead.

More work drives up overheads

In addition, the Dordogne agent immobilier has an advisory role that goes way beyond the function of a UK estate agent. In the UK, once the agent has obtained an acceptable offer, he will pass the matter to a solicitor. Apart from periodic checks on progress, his role is over. But France has no real equivalent of a solicitor. As in other Continental countries, the notary is the person responsible for giving ultimate legal effect to the sale and purchase. The notary is also required to give legal advice – but he does so in an objective and informative way, rather than espousing the cause of a buyer or a seller.

French law requires estate agents to adopt an advisory role. Many of our professional colleagues keep this to a minimum. However, we believe that this is an opportunity for the Dordogne estate agent, rather than a gap. We prepare contracts in bilingual format, guiding buyers and sellers through the preliminary legal formalities. Obviously we are aware that we have conflicts of interest, but we try to steer our way through them, making sure that both sides are aware of what is involved and telling them that they are perfectly entitled to get impartial legal advice from a third party if they wish.

All of this takes time and expertise. We do it for no additional remuneration – it comes from the commission we charge.

The downward force – competition

Obviously there is a ceiling to the amount an agent can charge. If one agent were to charge 50% where others charge under ten it is unlikely he would get much business. But I have to say that the price competition among Dordogne estate agents does not appear so strong as to force rates down.

Where a seller gives his property to a number of estate agents – as is usually the case with Dordogne property - French competition law requires the net sale price to be the same. In this way there can be price competition among the respective estate agents. Since properties are advertised at a commission-inclusive price, it follows that the agent with the lower commission will advertise the property at a lower sale price than his competitors. It pays for buyers to shop around.

However, this does not seem to occur as much as you would expect. At the lower end of the market we are currently charging two thirds of the rates charged by our competitors. But there is no evidence that this price differential is bringing more buyers or indeed sellers. People seem to be remarkably accepting of the rate charged, regardless of its level. As a result, the downward force of price competition is less strong than you would think.

In a nutshell: Dordogne estate agents are more expensive than UK ones because they have more to do, with less transactions in number, than their UK counterparts, while suffering similar overheads. And it is likely to stay that way so long as price competition remains weak.

Antony Mair
MCM Dordogne Property