Ken,

Catching up on the ricochet of posts, I think your understanding and my vague recollection of the SCI ramifications are pretty much the same. By the way, did it come up earlier that you can easily disinherit your brother and/or sister if you are married -- through a "donation entre epoux." Otherwise, they have rights to the estate under French law, too.

I've been reading this thread with great interest all day but was unable to post because I was at work :(.

My partner and I created an SCI about a year ago specifically for the purpose of buying an apartment in Paris. I'll try to answer some of the various questions I've seen here today.

This system is based on the Napoleonic Code and has something to do with Napoleon's unhappiness about his divorce proceedings with Josephine. These laws apply to all real property in France, regardless of the nationality or place of residence of the owner.

It is correct that you cannot disinherit your children in France. When you die, your spouse gets one half of your real property and the other half is divided evenly among your children. If your widow then gets remarried and dies soon after, half of her share will go to her new husband and the other half of her share will go to the children she had with you. I believe the record is one person dying a leaving behind 14 distantly related owners of one apartment.

There is no way around this system. You cannot create a will that changes the order of succession. As Dave posted, you can alter the timing of probate and taxes through amending your marriage status.

There is no way around inheritance taxes. The more distant the relation, the high the tax. I believe the rates are 20% for children, 40% for parents and siblings, and 60% for anyone more distant.

An SCI is a corporate structure similar to an LLC in the U.S. It requires at least 2 shareholders. The shareholders own the SCI; the SCI owns the property. An SCI is created for holding property, but not for profit-making purposes. There is no limit to how much property an SCI can own.

Shares in corporations are not considered real property in France. Therefore, you may do anything you like with them--leave them to your children, neighbors, church, charity, poodle, etc. When the SCI is established, the by-laws can stipulate the disposition of the shares following the death of a shareholder. One share belonging to each shareholder is still proscribed by law and the succession for that one share must follow the Napoleonic Code.

The cost for setting up an SCI is about $2,500. There are no annual fees. You must have a recorded annual meeting and be able to provide the minutes to the government upon request. A meeting over dinner or cocktails will suffice, as long as there's a record that the shareholders were present and accounted for. There may be an annual paperwork requirement, but we haven't quite figured out that part, yet.

The SCI must still pay the annual taxe fonciere and tax d'habitation (property taxes). Capital gains are taxable just as they are for individual owners, except that the gain is reduced by 15% each year after year 1 (I think), with the net effect that if you own the property for about 7 years, you will owe no capital gains tax.

If you're buying property, you must have the SCI in effect before finalizing the purchase, and it does take some extra time to create the SCI.

An SCI is not for everyone, because once they are created they have a life of 99 years and are virtually impossible to dissolve. If you get divorced, you can find yourself co-owning property in perpetuity with your newly-despised spouse.

A caution about average prices by arrondissements. Much of the housing stock in Paris desperately needs renovation--often phrased delicately in Parisian real estate ads as "needing refreshment". We looked at several "needing refreshment" apartments that needed completely new electrical systems to meet code and had no functional bathroom. Thus the average price is very misleading for Americans. You can plan to spend at least 20% above the average price for something that most Americans can live with.

You cannot get a loan for French property in the U.S. You can, however, get a loan at certain French banks. Interest rates are a bit lower than here, and there are a number of creative financing options available, none of which are longer than 20 years. The minimum downpayment and closing costs will run about 30% of the purchase price, and you cannot borrow any part of this cost in France. You can, however, put it on a home equity line in the U.S., as long as it doesn't skew your entire financial picture.

That's it for now, folks. If I can think of anything else helpful, I'll let you know. I'm not an expert, but I'll certainly try to answer any questions based on our experience.

Truffaut,

Great post. Thank you!

I do have one question. You mentioned French bank financing. Of the expatriates I know, admittedly not a very large number, the only ones who made a purchase with French bank financing were employed in France, or had partners employed in France, with the exception of one French friend who had spent his entire working life in the United States, retired there with a substantial U.S. pension, and then bought in France. In that case, the French lending institution required a draconian downpayment: 60 percent. In every other case I know, American expatriates who have made a purchase financed it with a home equity loan in the United States. It makes sense to me that an American bank will not write a mortgage on French property, because in case of default how would the property be repossessed and resold? But will a French bank make a loan to a person with only U.S. income? It doesn't work the other way around. We recently purchased a house in the Midwest -- after 18 years of residence abroad. At this point we have a "zero" credit rating in the United States - not bad, just nonexistant - and virtually all of our income is in France. There was exactly one U.S. lending institution willing to make the loan: the university credit union whehre we had banked 18 years ago, and still had modest IRA accounts. Why would it be any different here in France regarding banks willingness to lend in the absence of French income?

Dave,

It is forbidden for a French bank to make a loan to someone living outside France. Because it's actually a division of one of the English banks (either Abbey National or Woolrich, I think), Banque Patrimoine et Immobilier (BPI) will loan to non-residents who do not have French income. You must, however, have a French bank account so that the loan payments can be processed, and BPI does not offer consumer banking.

We felt, given the current exchange rates, it would be foolhardy to take out a loan in dollars to pay for the entire purchase. If the dollar recovers to where it should be, we could find ourselves in an "upside down mortgage" in which we would owe more than the property is worth. On the other hand, if the dollar continues to tank, paying in euros every quarter gets increasingly expensive. Logic would suggest that over a 20-year period, the dollar will recover a reasonable standing.

Your caution about average prices and necessary renovation is a good one. In my experience, many older apartments in Paris require extensive renovation that can include the moving of walls, all new wiring, and plumbing, new heating and new windows, though everthing does not always have to be done immediately. In earlier years I did quite a bit of amateur renovation. (My hardware vocabulary is impressive). You needn't fear hiring renovation in Paris, though it is a challenge being your own contractor here -- and everywhere else. Not for the faint of heart or weak in French. But the quality of work is very good, when you finally manage to find someone to do it. (It never does get done on schedule, however.) Most expatriates will probably want to hire an architect, who in France often serves as the contractor. The challenges article I cited did include average per squre meter prices for old, "rehabilitated" apartment. I didn't list those because I'm not quite sure what they were talking about. (I read popular press real estate reporting regularly and have never encounted the category. They probably were refering to apartments in old buildings that had been purcahsed in their entirely, renovated and then resold. In that case, the per sqaure meter prices given were uniformy about 2,000 euros higher than the ones I cited in an earlier post, so that probably is a more realistic guide, leaving aside the question of quality of a whole-building renovation. In the late 1980s and early 1990s during there was a speculative frenzy in France, especially Paris,and many whole building renovations were of poor quality. The real estate market now is much more sound, despite the record high prices, and I believe whole building renovations are better done.

Interesting about the British banks with operations in France. We have used both Woolwich (which now has a different name, perhaps the one you cited?) and more recently Barclays. The British banks have routinely offered better rates, though I do recall a few exceptions. I did not know the British banks in France would lend to someone without French income.

Truffaut, I so enjoyed reading your wonderful contribution to this thread. In its own way, it made me smile. I'm sure anyone interested in purchasing property in France will benefit from your well-written words.

A very interesting thread, and I guess what I thought was true about French inheritance laws was basically correct.

Whew, a very complex situation for sure.

It is amazing the information that one can read on Fodors. How kind of all of you to take the time to post all the detail information you know.

I should also have noted that there is a way to circumvent the inheritance laws. Property can be purchased "en tontine", meaning that when one owner dies, his/her share will revert to the survivor, as if the first person had never existed. Since there's no inheritance, there's no tax (until the survivor ultimately succumbs, too!). The same "clause tontiniere" can be written into the bylaws of an SCI, too.

"I should also have noted that there is a way to circumvent the inheritance laws."

I should have said "the inheritance tax laws." Sorry for the confusion.

I mentioned in a separate thread that I just looked at this thread a few days ago. Just want to report that there's a Times article on this subject published today:

http://www.nytimes.com/2005/06/23/garden/23paris.html?

"In Paris, Romancing the Deal"

By the way, the article mentions a few websites, including this one:

http://parisrealestatefinders.com/

(I've no relationship with these websites.)

For those who don't have an account with NYT and want to read the article, go to bugmenot.com and get a (free) ID and password to bypass registration (learned about that website here also).

Check out eBay item no.
6539968894

G.

On a more philosophical note, you may want to read the interview in today's WSJ with Orriana Fallaci where she says "Europe is no longer Europe, it is 'Eurabia', a colony of Islam".

Last night I watched a PBS special on Quincy Jones. Q had assembled a band which after tours in Germany, Belgium, Netherlands was to open in Paris with a show featuring Sammy Davis Jr. that was to continue to Broadway. The show never opened. This was in 1958 at the time of the Algerian uprising. I was there in October, 1958 and Paris could be a scary place. Police stood in front of Notre Dame behind personal barricades brandishing their submachine guns. Friends of ours had to seek shelter in a doorway when shots were fired between police and terrorists.

Well, just about 10-15 years ago, E. Village in NYC was a "scary place," and look at where it is now.

Is WSJ free to non-subscribers?

I guess I can try to get an ID from bugmenot.

The WSJ online is not free.

There is a big difference between the East Village and terrorism.

I understand -- I think that you're missing my point, though, as I'm missing yours.

My point is that I don't think what you posted has anything to do with pied-a-terres in Paris. Why don't you start a separate thread and about the Algerian war, the influx of muslims in Europe, and if you wish, the student riots in May 1968 in Paris?

I'm sure that the article is interesting, but we can talk about it elsewhere.

Thanks.

The article is relevant if you think the demographic, religious and political changes coming to Eurabia will have an effect on real estate. The Motor City, Watts, Belfast says they will.

You, 111op, have every right to disagree.

Yes, jsmith, and so do the existence syringes on streets and drug dens.

The point isn't what will affect housing prices. The point is how one should go about buying a pied-a-terre in Paris.

And the reason I'm saying all this is because I don't want this thread to turn into something political, after which it will just be deleted.

Makes sense?

Why don't you start a new thread to explore those issues you want to explore? That seems fair enough.

Thanks.

No one has mentioned the cost of fixtures, so far as I know, but from what I have read of buying real estate in various parts of Europe, including Paris, typically absolutely everything has to be purchased (sinks, carpets, light bulbs, etc.).

I recall that when I visited Paris in July 2004, a small apartment was selling in or near Versailles for 40000 (forty thousand) Euros. That seemed hard to believe, but I'm fairly sure I'm remembering correctly.