I believe rents are lower here than in New york. There've been annual price increases of up to 10 percent in many arrondissements in the last four or five years. The record in the last 12 months, according to the Challenges article, was 20.6 percent in the 11th arrondissement! Obviously, this can't go on too long. On the upper end, prices are much higher than those averages. Anecdotally, I have a colleague who owned a nice 55-square-meter apartment in the 7th with a smallish terrace. He and his wife had been living in a larger rented apartment, which they had the opportunity to purchase. So they put their owned apartment on the market. The realtor said, let's list it at 480,000 euros -- a bit of a stretch, he said. It sold in two and a half hours.

As for purchasing and renting out, there's a two-track legal structure. The law around unfurnished rentals is extremely favorable to the tenant. Leases are for a minimum of three years, and many are for six years. The landlord is committed for the entire lease period. The tenant can terminate a lease at any time on three months' notice, or one month if a work-related move outside commuting distance is the motive for the move. Leases renew automatically. At the end of a lease period, apartments can only be reclaimed by the owner for his or her habitation or that of a family member. Elderly people have additional tenant rights. Evictions in cold weather are a no-no. It's extremely difficult to have a non-paying renter evicted. The legal process is costly and can take one or more years. Furnished rentals fall under a different set of laws that are considerably more favorable to the landlord, which is why more and more Paris rental apartments are offered furnished. However, recent legislation does mandate a minium lease period of one year for furnished rentals.

There you go. It's good to know that I wasn't really completely off base in terms of Paris apartment prices.

I guess Paris apartments seem deceptively cheap on the surface, but when you look at them closely, they're really not cheap at all. Still, Paris apartments seem to look "nicer" than NYC apartments -- maybe there's just that charm factor. I don't know.

Any ideas what's driving the boom in the Paris market? Supposedly low interest rates are driving the US market, but when I sat down and did my calculations I simply couldn't see how that could be the complete story.

I guess that's why I'm not rich. :-)

By the way, a (nice) starter apartment (i.e. studio) in Manhattan can easily rent for $1500 and up. But people in NYC seem to be able to snag some sort of deal or another. I've a friend who lives in Hell's Kitchen, an area that was practically a dump and a no man's land about ten years ago, and she pays around $1200-$1300 for a small one bedroom apartment. But her apartment is rent-stabilized.

Another friend lives in Willamsburg (in Brooklyn) for under $1000 in a railroad apartment, but he assures me that new tenants who've moved pay a couple of hundred more.

Would be interesting to hear how rents in Paris compare. My understanding is that there's also some sort of rent stabilization in Paris?

Which, I guess, brings me to the next question. At current housing prices, it seems like renting is cheaper (in terms of financing mortgage costs + maintenance in NYC). So if rents are cheaper in Paris (comparatively) and sale prices are relatively high, then what makes owning apartments attractive in Paris (compared to renting, say)?

Robespierre, I think you should send me over to scout it out for you.

..Paris rentals are a funny things as outlined..If you have an unfurnished in essence rent controlled appt, it can be quite a steal which makes some people think very carefully about buying. Sometimes people will buy a country place rather than buy an appt if they have a long standing rental. I have lived in France and it took me 2 years to learn the rules of the game but I never learned how to fully play the game! Thank goodness my partner was French and considerably older (with years of experience in the market).

The high end of the market is driven by non-French purchasers, though I doubt Americans are as present now, given the unfavorable exchange rate. The broader market is driven by very favorable interest rates, and loosening of French bank policy in regard to the length of loans. The Challenges article notes that the average now is 16-year loans at 4 percent, whereas in 1991 it was ann 11.5 year loan at an average 10 percent. The market also is driven by the difficulty of for a prospective renter of concluding a lease, since landlords are exceptionally cautious because of the legal context.

I think its aversion to "paper" investments that turns people here to real estate. Also, property taxes are a whole lot lower here than in the United States.

Dave, if there is a minimum of one year on leases for furnished apartments, how do all these short-term rental places work? What rules apply to those rentals, do you know?

Ken

Dave_In-Paris, isn't there some type of law in France regarding inheritance, that applies whether a person is a citizen of France or elsewhere.

Something about the property has to go to the deceased child or children rather then the deceaseds spouse?

I may be wrong or confused (it has happened on occassion) but it seems like I have read this more then once.

Ken,

Tiptoeing out on a limb: I believe vacation rentals (of appartments) fall under the category of "prestation des services," regulated separately. The critical difference, I imagine, is that the renter is not establishing his legal residence in a vacation apartment, and so does not require the kind of legal protection that a longer term renter of a furnished apartment does. You may sign a contract for a vacation rental but you won't sign a lease. Also, the one-year rule for leases of furnished apartments is brand new. No jurisprudence around it yet.

Your question is an interesting one, Ken, because fiscally there is no difference between a series of one week furnished rentals or a one-year furnished rental. They're all taxed as benefices industriels et commercials .(How many mistakes did I make in that phrase?)

LoveItaly

I believe that's correct, property in France would fall under French inheritance law, which does favor children. Usually, a surviving spouse has, at least, life use of the property. And a spouses rights can be strengthened through a legal act called a "donation entre epoux. Also, the legal structure of a marriage can be changed to alter the way an estate is handled -- though not to disinherit children. Aralynn and I, who have no children, were able to change our matrimonial "regime" under the terms of a U.S.-French treaty without going through court, delaying probate until we both have died. (One consequence is that our worldwide assets, such as they are, will be passed on, and taxed, in France. But these are complicated matters, and anyone contemplating a property purchase in France should seek legal and tax advice from professionals with a lot of international experience.

That should read, our worldwide assets, such as they are, will be probated and taxed in France

One way to get around the French inheritance laws, which require that property be passed on to children, siblings, parents, nieces and nephews, etc. (if I understand correctly) is to form a Société Civile Immobilière. Two unmarried people can, in other words, incorporate themselves and buy the property that way. The property is then subject to corporate laws, not family law. And the two unmarried people can live in the property rent-free, so there aren't any big tax issues. You still pay property tax and the taxe d'habitation...

But if I recall correctly, the société civile route involves paying a yearly sum of something like 5,000-10,000 euros. Right, ken?

Not knowing this -- but that fee is yearly? Hm....

Even at 5000 euros a year, this would be 50000 euros for ten years. And what if the couple lives on for a long time?

It's a princely sum....

I find this concept quite bizarre, actually. Isn't there a concept of a will in France? I mean, why can't you just leave your property to whomever you want (provided that you wrote all all this down with a lawyer)?

I suppose there are ways to sit down with your notaire and draft a way to get around the dreaded inheritance laws, but the process certainly can't be all that easy or cheap. I can't tell you how many French people I Know who had their parents' properties foisted on them through inheritance and who can barely afford to keep the places up.

Interesting. Then why don't they sell the place if they can't afford the upkeep?

What I would find more interesting is if the people who inherit can't afford to pay the inheritance tax -- persumably there's such a tax in France too -- as there is in the US.

Didn't this issue of inheritance come up in Moliere's "Misanthrope"? I vaguely remember this, but then I don't know if my memory is just failing as usual. (I know that's not the main topic of that play.)

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St. Cirq,

It depends on what portion of the inheritance laws you want to "get around," and perhaps on your nationality. As Americans, under treaty terms, we were able for approximately 500 euros to modify our matimonial regime (determined in the absence of a prenuptual agreement by the law of the U.S. state in which we first resided after marriage) so that whichever of us survives will not have our joint estate probated. That will come when the second of us dies. This is no small matter in France, where inheritance taxes, even for spouses, are impressively higher than they are in United States. French people who want to similarly modify the legal structure of their marriage must go to court, and pay a tax on their net worth (and if they have children, a court is unlikely to grant their request). The notaire who "authenticated" the act under which we did this gently pointed out to us that French citizens were pretty jealous that folks like us could do it so easily, and I understand perfectly.

If you are thinking rather of the inheritance rights of children, or of their expossure to inheritance tax, I have a colleague who arranged for his children to purchase the Paris apartment he longed for, resolving the inheritance tax issue, but of course, potentially raising other in-family issues.

Much of this could be troubling, but I find it interesting.

Ken,

Are you sure that shares in the SCI won't be treated, in you or your fellow shareholder's estate, in the same manner that real estate or other assets would be treated ?

111op,

In France, you inherit debts as well as assets, and you may not know until after you've accepted the inheritance whether the estate's in the black or the red!

St Cirq,

Unless there is some horrible surprise waiting for me, I don't think there is any annual fee or tax to pay on the SCI. My notaire explained that as long as the SCI has no revenues, there is no tax to pay. And that's been my experience so far.

As I think I previously mentioned, de Particulier à Partculier publishes a series of booklets called Collection des Guides Pratiques du Logement - anyone planning to purchase property in France should read these or at least get pertinent parts stranslated if you can't read them. There is an entire booklet called Les Sociétés Civiles Immobilières (I think I should reread it).

It says, in the opening paragraph:

"Bien des idées fausses circulent au sujet de ces fameues sociétés civiles immobilières. On vous a peut-être conseillé de constituer votre propre SCI. Mais lorsqu'il s'agit d'envisager les raisons précises d'utiliser ce montage juridique plutôt qu'un autre, les plus convaincus deviennent moins convaincants.

Certes, la SCI a sa raison d'être; mais en réalité, c'est une formule trop souvent utilisée. Elle a aussi ses contraintes, qu'il vaut mieux ne pas sous-estimer.

La SCI n'est pas une formule miracle qui permettrait d'éluder droits de succession ou droits de mutation...."

It then provices 65 pages of highly specific advice about use of this instrument, which I'd want to read thoroughly before purchasing a property in that manner.

Dave,

The notaire told me that if one of the partners in the SCI dies, the other one inherits his or her shares. But my understanding is that the SCI must be owned by at least two individuals, so the suriving partner would most likely have to take on a new business partner.

My understanding is that the shares are not considered personal property and are not subject to inheritance laws.

A French friend of mine has three children. She told me that those three will automatically inherit 3/4 of her estate -- 1/4 each. She said she can't change that, but she can leave the remaining 1/4 to whomever.

I've also been told that if, for example, a niece or a nephew is a person's only heir, the inheritance tax is equal to 60% of the value of the property inherited.

This discussion is all very interesting, I must say -- wish I could contribute in a more intelligent manner, but I know nothing about French inheritance laws.

What happens in the US? Are debts inherited too? (What a horrible thought.)

Children do not inherit their parents' debts in the U.S. -- at least not in states I'm familiar with. I don't know about in France, but Dave says so and I don't doubt him.

Ken,

I did some reading on the SCI matter, My recollection is dim, but the mention of inheritance raised a small red flag. I do know that tontines don't help unrelated people -- at least did not in the case of a colleague of mine. At the least, an SCI should make the proportions of ownership perfectly clear, and that could be vital in case of any legal contest.

The point about a surviving partner "inheriting" a deceased partner's shares in an SCI is not really a matter of inheritance. It is a clause that can be written into the by-laws of the société (corporation).

I guess the next obvious question is -- if someone is a dual citizen (say French and American), which laws govern?

You can renounce an inheritance in France. But you may not know whether you are turning down a fortune or saving yourself from crushing debt.

I believe that the laws of the country where the property is located would apply to inheritance of that property. In other words, if I owned property in France and died without spouse or child, my mother would inherit it. Or my sister. For example. If I owned a house directly with a partner (not as part of an SCI), that partner would have to buy out or rent from my heir or heirs.

I don't understand that, Dave -- well, I guess it depends on how well you know the person who's leaving the inheritance, no? If everything is "public," more or less, surely an accountant can figure if the end result has a net surplus?

111op

In our case, French laws govern, even with regard to U.S. assets, because we exercised those treaty rights to our advantage in France. At least, France fervently believes that's the case. God knows what various U.S. jurisdictions may claim!

Not much about an individual's assets is "public" in France. Spouses don't automatically inherit from each other, and can be married under absolute "séparation des biens". I've known couples where one spouse had money in the bank or owned property that the other spouse didn't know anything about (supposedly).

What I said about my mother, say, or my sister inheriting my privately owned property under French family law would apply even though my relatives live in the U.S. I think the SCI would prevent that from happening and protect two partners who want to property to each other even though they are not married or blood relatives.

"... who want to LEAVE property to each other ..."

Unless things have changed since I last read and discussed the business of inheriting debts, the problem is that there is a drop-dead time for accepting or rejecting the inheritance, which practically can be before a full accounting of the estate. (Even in the case of U.S. estates, it may take quite some time for debts to become evident.)

There are even more delicious complications in France. Imagine the case of a couple with one or both spouses having children by previous marriage(s). In the unlikely event of their death in a "common" auto accident, an "expert" judgement must be delivered as to who died first -- by a nano-second, if necessary -- to determine the inheritance rights of the children. It's all Napolean's fault!

Ken,

Here's my musing, with the answer perhaps buried in those 60-odd pages of St.Cirq's PAP pamphlet. If the SCI "charter" provides that shares will be inherited by the surviving partner, does this mean there's no inheritance tax, or does it simply mean that no one else related to the deceased can claim those shares as part of the estate?