France’s real estate market has long been an attractive destination for international investors. Understanding the regulatory framework is crucial for foreigners investing in French property. This comprehensive guide will walk you through the essential regulations and requirements.

Legal Framework for Foreign Property Ownership

France maintains an open policy toward foreign property investment, with no significant restrictions on non-resident buyers. However, there are specific regulations and procedures that foreign investors must navigate.

Basic Property Rights

In France, foreign investors enjoy the same property rights as French citizens. This principle is guaranteed by the French legal framework, which is based on the Civil Code and protects owners regardless of nationality. These rights cover several fundamental aspects :

Full ownership rights (pleine propriété)

The right of full ownership confers to the owner the possibility to enjoy, use and dispose of his property in an unlimited manner, following the laws and regulations in force. It is the most complete and absolute right.

Full ownership is the standard right granted when buying real estate. However, there are limited forms of property rights that can affect the use or management of the property owned by the foreign investor :

• Right of way (servitude) : It is a charge imposed on the property for the use of a third party. It can impact its value or operation.
• Co-ownership (copropriété) : For collective property, the owner must comply with the co-ownership regulations, including the rules for the management of common parts and the payment of co-ownership charges.

Legal basis : Articles 544 and 637 to 710 of French Civil Code and Act of July 10, 1965

The right to rent out the property

Foreign investors are free to lease their property, whether for residential or commercial use : 

• Long-term lease : It is a lease on a property for residential use for a period of more than one year. The lease is subject to strict legal rules designed to protect tenants and ensure a balance between the parties (e.g. the minimum duration, the cap on rent increases in certain tense areas).
• Seasonal rental : It is a short-term rental agreement (less than a year), intended for temporary stays. The property is usually furnished and intended to be occupied on a temporary basis by holidaymakers or tourists.

Legal basis : Articles L.631-7 et seq. of French Building and Housing Code, French Commercial Code and Law of 6 July 1989.

Inheritance rights protection

French inheritance law is a key element of the legal certainty afforded to foreign investors :

• The hereditary reserve : Children of the owner have a guaranteed minimum charge right to the property, regardless of the wishes of the deceased. This rule applies to all property located in France, even if the owner is a foreign national.
• Legal basis : Articles 720 et seq. of French Civil Code

• Choice of the inheritance law : Foreigners residing in France can choose the inheritance law of their nationality to govern their assets, provided that they stipulate this in their will.
• Legal basis : European Regulation (EU) no. 650/2012

The Property Buying Process

The French property purchase process follows a structured approach with several key stages:

1. Initial Agreement (Compromis de Vente)

The preliminary contract is the first crucial legal document in a real estate transaction. It is an agreement signed between the seller and the buyer that sets out the main terms of the sale :

Property details and price : The compromise must specify precisely the address of the property and its description (e.g. surface, condition, etc.), as well as the agreed sale price.

Conditions of sale (conditions suspensives) : They are clauses that make the sale conditional. If the conditions are not met, the sale can be canceled without penalty. The most common include :

Obtaining financing : If the buyer does not get his real estate loan, he can withdraw without losing his security deposit.

No mortgages or right of way : The buyer often wants to ensure that there are no claims related to the property or charges affecting the property.

Completion timeframe : The buyer has a withdrawal period of 10 days after the signing of the agreement. Within this period, the buyer can withdraw from the agreement without cause and without losing his security deposit.

Legal basis : Article L.271-1 of Building and Housing Code

Date of signature and transfer of ownership : It sets a deadline for signing the authentic deed, which marks the end of the process and the final transfer of ownership.

The preliminary contract must be in writing. A down payment (usually 5-10% of the sale price) is paid by the buyer when the preliminary contract is signed, which binds both parties contractually.

2. Role of the Notaire

In France, the public notary (notaire) plays a fundamental role since he is legally required in all real estate transactions. He intervenes at several key stages of the process, ensuring that the purchase takes place in accordance with French law :

Verification of property ownership and documentation : The notary is responsible for verifying the identity of the parties and ensuring that the seller is the legitimate owner of the property. This includes consulting the land registry to confirm the absence of charges or third-party rights on the property (e.g. mortgages, servitudes, etc.).

Legal basis : Articles L.220-1 of COJ and 2439 of French Civil Code

Establishment of the authentic deed of sale : This deed, which makes the sale legally binding, must be signed by both parties in the presence of the notary,

The legal role : The authentic deed protects the buyer from the risk of fraud or hidden defects since the public notary can be held liable. 

The transfer of ownership: The notary changes the land register to register the buyer as the new owner of the property. This registration is essential as it ensures the security of the transaction and gives the buyer rights against third parties.

Legal basis : Articles 1369 and 1191 of French Civil Code and L.710-1 of French Commercial Code

Fund management : The public notary collects the buyer’s sale price and makes sure the payment is made before transferring the property. He also pays for notary fees, which include registration taxes and other costs related to the sale.

Legal basis : Article R.444-10 of French Commercial Code

Compliance with French law : The notary also ensures the legal compliance of the entire transaction (e.g. compliance with the PLU, the Local Planning Plan, for properties in urban areas).

Financial Considerations

Property Taxes and Costs

Buying real estate in France, especially for foreign buyers, comes with several financial obligations. These costs include taxes, administrative fees and annual expenses related to the property.

Property transfer tax

Property transfer tax (or transfer fees) are a tax levied on the transfer of ownership of a property and paid by the buyer. It represents a significant portion of the total fees. 

• For an old property : It is usually set at 5.8% of the sale price. 
• For a new property : This tax is reduced to a lower flat rate so it is usually 0.715% of the sale price.

Legal basis : Articles 682 to 717 of French General Tax Code 

Notary fees

The notary fees are paid by the buyer when the authentic deed is signed and are added to the sale price. These fees are mandatory in all real estate transactions. They include several types of costs:

Registration fees : They are taxes collected by the state, accounting for the majority of the fees.

Purchase of an old property : About 7-8% of the purchase price (including the transfer fees mentioned above).

Purchase of a new property : About 2-3% as transfer fees are reduced.

Emoluments of the notary : It is a fixed amount calculated according to a proportional scale fixed by decret. 

Miscellaneous: It is a fixed amount covering administrative documents (about €800-€1,000).

Annual property tax (taxe foncière)

Property tax is an annual tax levied on all property owners. It is calculated based on the cadastral value of the property, which corresponds to an administrative estimate of the property’s rental value. The amount varies according to municipalities and the characteristics of the property. On average, it amounts to a few hundred to several thousand euros a year. 

Some partial or total exemptions may apply, including for new constructions or people with disabilities. 

Legal basis : Articles 1380 to 1406 of General Tax Code

Wealth tax for properties valued over €1.3 million

For properties with a net worth of more than €1.3 million, owners may be subject to the Real Estate Fortune Tax (IFI). Only real estate assets held in France are taken into account for non-residents. The main residence is exempt from this tax up to 30% of its value.

This tax follows a progressive scale depending on the total value of the property :

• between €800,000 and €1,300,000 : 0,5%
• between €1,300,000 and €2,570,000 : 0,7%
• between €2,570,000 and €5,000,000 : 1%
• between €5,000,000 and €10,000,000 : 1,25%
• more than €10,000,000 : 1,5%

Legal basis : Article 977 of the French General Tax Code

Mortgage Options

Foreigners wishing to invest in real estate in France can access French mortgages. However, they are subject to specific criteria and strict requirements, especially for non-residents :

The loan-to-value ratio (LTV) 

The loan-to-value ratio (LTV) is a key element of real estate loans in France, especially for foreign buyers :

• Non-residents : French banks generally finance 60-80% of the property’s value.
• Residents : They can get a higher LTV of up to 90-100%.

Moreover, French banks require a significant personal contribution for foreigners, often 20-40% of the purchase price. This often includes notary fees and transfer fees.

Additional documentation requirements

To access a real estate loan in France, foreign buyers must comply with strict assessment of their creditworthiness and financial situation. French banks seek to limit risk by requiring a series of supporting documents that are both detailed and in line with local standards :

• Proof of identity : It can be a copy of a valid passport or an identity card. It 
• Proof of income : French banks accept recent payrolls, tax returns, and employment contracts as proof of income. Self-employed workers must provide financial statements and balance sheets too.
• Bank history : It refers to bank statements from the last 3 to 6 months.
• Proof of wealth : It corresponds to a list of assets held (e.g. savings accounts, investments, other real estate).
• Proof of residence : French banks accept electricity or telephone bills or equivalent in the country of residence.

Foreign non resident buyers must comply with certain specific requirements imposed by French banks :

• Revenues in euros or in a stable currency : French banks favour applicants whose income is generated in a stable currency since it allows them to reduce the risk of fluctuations in exchange rates.
  • Consequences : Applicants with incomes in a more volatile currency may be denied a loan or subject to stricter loan conditions (e.g. higher interest rates or reduced loan-to-value ratios).
  • Solution : French banks may require that income be transferred in euros to simplify the calculation of monthly payments and ensure their stability.

• Opening a bank account in France : French banks require any non-resident borrower to open a bank account in France to centralize credit-related transactions

Mandatory life insurance for mortgage approval

In France, taking out a borrower’s insurance is an essential condition to obtain a real estate loan. Indeed, it guarantees repayment of the loan in the event of death, disability, or inability to work. Foreign buyers can purchase this insurance from the lending institution or through a third-party insurance company (insurance delegation).

This insurance is calculated on the basis of borrowed capital and can be approximately 0.2-0.6% of this amount per year.

Legal basis : Article L. 313-30 of the Consumer Code

Regional Variations and Restrictions

When a buyer, whether foreign or French, is considering investing in property in France, it is essential to understand that applicable regulations can vary considerably from one region to another. These restrictions are often aimed at preserving cultural, environmental or agricultural heritage :

Historic districts with preservation requirements

Historic districts (protected areas) are subject to strict renovation and building standards. These areas are identified by conservation and enhancement plans (PSMV) in order to protect architectural and cultural heritage. The implications for buyers are the following :

• Any renovation or modification of a building in these areas requires a prior authorization issued by the architect of the buildings of France (ABF).
• The materials, colors and techniques used for the work must respect the historical characteristics of the building or neighborhood.

Example : Paris, Lyon or Bordeaux are subject to such restrictions. 

Legal basis : Article L. 631-1 et seq. of French Heritage Code

Coastal areas with specific building restrictions

Construction in areas close to the coast (beaches, cliffs and shorelines) are subject to strict rules in order to protect the seascapes and the environment:

• Prohibition of new constructions within 100 metres of the shoreline
• Limitation in some coastal areas subject to natural hazards (erosion, fire or flooding) :  Buyers should consult the Local Planning Plans (PLA) to find out what limits are imposed.

Example : The Côte d’Azur and Brittany are subject to such restrictions.

Legal basis : The Coastal Act of 1986

Rural zones with agricultural land regulations

In rural areas, many lands are classified as agricultural areas, meaning it is reserved for agricultural or forestry use. These regulations are aimed at preserving arable land and supporting local agricultural activities :

• No conversion of land classified as agricultural into residential areas, except in exceptional circumstances.
• Restriction for non-farmer buyers in the purchase of large agricultural parcels, especially when the land is protected by SAFER (Land and Settlement Corporations).
• Restriction or prohibition of some constructions (houses or apartment buildings) in these areas.

Example : The Massif central or Normandy are subject to such restrictions.

Legal basis : Article L.141-1 et seq. of French Rural and Maritime Fishing Code, and article L. 123-1 of the French Urban Planning Code

Insurance Requirements

When buying a property in France, owners must take out various insurance policies to protect their property and meet legal requirements :

• Building insurance (assurance habitation) : It protects homeowners against risks related to their property and covers damage to the building. 
• Natural disaster coverage (catastrophes naturelles) : It is an important extension of building insurance that covers damage caused by exceptional natural events such as floods, earthquakes, avalanches, storms or severe weather events.
• Liability insurance for rental properties : It covers the risks associated with the occupation of the property by tenants or others and protects the landlord against third-party claims if damage occurs to the property, such as injury or damage caused by the landlord’s negligence.
• Unpaid rent insurance : It guarantees payment of rent in the event of a tenant’s default (non-payment of rent) and also covers the costs of legal proceedings to recover the sums owed.

Common Legal Pitfalls to Avoid

Although buying real estate in France is accessible to foreigners, it involves specific risks that foreign investors must understand and avoid. They should be particularly mindful of :

• Building permits and planning permissions : If a property is purchased without having verified that all necessary permits have been obtained, the works may have to be demolished or modified, or the investor may have to pay fines and penalties.
  • Solution : Verify that all administrative procedures have been followed and that the property complies with local regulations.
• Property boundary disputes : A dispute over the demarcation of the property can affect the use of the land, cause procedural costs or reduce the value of the property
  • Solution : Verification of the boundaries of the land by an expert surveyor before buying.
• Hidden defects (vices cachés) : If hidden defects are discovered after the purchase, the buyer may be entitled to repairs, a reduction in the sale price, or a cancellation of the sale. This can result in high repair costs and significant inconvenience.
  • Solution : Carrying out a technical inspection by an independent expert and including a suspensive clause in the contract
• Co-ownership rules in apartment buildings : Failure to comply with the co-ownership rules may result in fines, penalties, or legal action from other co-owners.
  • Solution : Reading the co-ownership regulations carefully

Recent Regulatory Changes

Real estate laws and regulations in France are constantly evolving. Foreign investors must stay informed about the latest developments affecting them :

• Energy performance regulations : From 2025, homes rated F and G in the Energy Performance Index (EPI) will no longer be able to be rented in France. So if an investor buys a property with a poor energy rating, they could be forced to carry out expensive work to bring it into compliance.
• Short-term rental restrictions : In some big cities, short-term rentals are strictly regulated with time limitation or the requirement of a prior declaration from the town hall. If an investor fails to comply with these local regulations, they risk significant fines or the suspension of the lease permit.
• Tax law updates : Tax legislation around real estate changes regularly in France. Tax reforms, local taxes, or capital gains taxes can affect the profitability of real estate investments.

Conclusion

Successfully navigating France’s real estate regulations requires careful attention to detail and proper legal guidance. While the process may seem complex, understanding these key regulations will help ensure a smooth property investment experience in France.

Important: Always consult with legal and tax professionals familiar with both French property law and international investment regulations before making any significant real estate investments in France.

Harley Miller Law Firm “HMLF”

Head office: 14th floor, HM Town Building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.

Phone number: +84 937215585

Website: hmlf.vn 

Email: miller@hmlf.vn