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Purchasing New Construction or "Off-Plan" in France

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Planning in the Purchase Off-Plan

Buying new construction or property that has not yet been built from a developer is called off-plan purchasing in France. Purchasing off-plan is a fairly common, safe and even profitable means of property acquisition in France.

Before entering into a contract to purchase off-plan, it is important to determine what stage of planning the developer is in. This will give you a good feel for the viability of the project. Some developers need to line up as many potential buyers as possible before their bank will release funds. It is possible that the developer may not yet own the land on which the project will be built. Even if they own the land, they might not have all the planning approval and permissions in place. These factors will effect whether or not the project will ever be started. You also need to establish the likelihood that the plans will be changed, perhaps significantly, from those originally presented to you.

When a developer has full planning consent, you will need to review it carefully. Ask to see the plans. You may need to visit the local mairie to view them. The plans will generally tell you more about the project then the preliminary contract does.

It is also important to do some research on the developer themselves. While French developers tend to be more reliable and reputable then some of their counter parts in other countries, it is still important to know who you are doing business with. So do a little research, talk with other investors, and if possible, go visit some of their previous developments.

Benefit of Purchasing Off-Plan for Investors

Purchasing off-plan in France offers many benefits to investors. Whether you want to resell the property at a profit, offer buy-to-let, or have a long term rental income, off-plan is on the mark for savvy investors.

Choice of units is a definite benefit to purchasing off-plan. In any development, certain units or properties are bound to be more desirable than others due to convenient location, views, privacy, size or other desirable characteristics. When purchasing off-plan you have the opportunity to purchase the most sought after locations in the development and profit accordingly.

Another benefit of purchasing off-plan is the pricing. Developers will off set financial risk by ensuring at least a portion of any project is pre-sold before the advent of construction. They understand that these early purchasers are relying on reputation, artistic renderings, property location and a bit of imagination to make their investment decisions and must offer low pricing as an incentive to take a risk. As the building project progresses, pricing and property values increase, realizing almost immediate equity building for the earliest investors. Upon completion of construction, the property can be sold for a profit.

In addition, off-plan projects are often in resort areas which lend themselves well to providing a great holiday or vacation home as well as rental income. The high demand for tourist and residential rental property can yield 7-10% profit margins for investors.

Contracting for Off-Plan Property in France

To purchase property off-plan in France you will enter into a two part contract.

Contrat de Reservation

The first part of the contract is called a Contrat de Reservation. The Contrat de Reservation is mainly designed to obtain a commitment from a buyer and may be relatively vague in terms of developer responsibilities. In fact, a developer is not under any obligation to sell to you even after signing the preliminary contract. The preliminary contract generally calls for a deposit which is fully refundable if the project does not proceed.

The level of detail provided in the Contrat de Reservation will vary from one developer to the next, but it important to understand that the details of the plan may and often do change in the time between signing the preliminary contract and the final contract.

The Contract de Reservation is the time to address mortgage contingencies. While is would be wise to obtain at least preliminary mortgage approval prior to entering into the preliminary contract, it is also a good idea to have a mortgage contingency clause inserted.

While there is no legal obligation to enter into the preliminary contract, not doing so means you will need to wait until the final contract is available. Should you not feel comfortable entering into the Contrat de Reservation and choose to wait until the final contract is available you may miss out on early pricing incentives and the specific property you want.

Vente en L'Etat Futur D'Achevement

The final contract is called the Vente en l'etat futur d'achevement (VEFA). This contract will contain a full description of the proposed development including its exact location. It is important to carefully compare the VEFA to the Contract de Reservation for differences.

You should especially verify the size and location of your property. Should a dispute arise, the terms of the VEFA will take precedence. It is also important to note the dimensional tolerance. Developers will generally insert a clause granting a dimensional tolerance of up to 5%.

The Notice Descriptive section will contain a technical description of the materials and equipment used in the construction. This section will often include the phrase 'or equivalent' and may allow the builder a great deal of discretion to change those materials. The Notice Descriptive will also delineate all communal facilities and their conditions of use.

At this time, the developer will provide you with a copy of the property rules called Cahier des Charges. This will include things like restrictions to business use of the property, service charges, and rules regarding the use of communal facilities. Full supporting documentation, descriptif detaille, will also be provided and kept on file by the notaire.

The entire contract including the supporting documentation will include a great deal of technical jargon and drawings, all in French. Investors, even those fluent in French, may want to consider outside professional advice in reviewing and executing the contract. The developer will employ the services of notaire prepare the VEFA contract. However, to help you understand the process and protect your interests, you may wish to sign the preliminary and final contract in front of a notaire of your own choosing. If you choose use the services of a notaire, is would be wise to make sure they have experience with VEFA contracts. In addition to your own notaire, you may want to consult other industry professionals such as an architect or engineer. A full copy of the VEFA must be provided to you at least one month in advance of signature to allow you time to fully review its contents.

Consumer Protection for Off-Plan Purchases

French law provides a number of rules and regulations which provide consumer protection. Some of those protections include:

  1. The preliminary contract (Contrat de Reservation) is not required. Purchasers can wait until the detailed final contract (Vente en l'etat futur d'achevement (VEFA)) is available.
  2. Developers can not ask for nor receive a deposit until the preliminary contract (Contrat de Reservation) is signed.
  3. Deposit money must be placed into a client account through a bank or the notaire. It can not be used to fund the project.
  4. There are maximum deposit amounts allowed and they are dependant upon the estimated property delivery date. If the property is to be completed within one year the deposit can not be more than 5%. Between one and two years, the maximum deposit is 2%. If the property will not be completed for more than two years, there can not be any deposit requirement.
  5. The preliminary contract must provide the latest date by which the final VEFA contract must be signed. If the developer does not meet that date, you have the right to withdraw from the contract and receive a full refund of your deposit.
  6. Like purchases of existing properties, off-plan properties have a seven day cooling off period. Once you sign the Contrat de Reservation, you have a seven day cooling off period during which time you may withdraw from the contract without penalty and receive a refund of your deposit.
  7. The contract can be annulled if you are not give copies of or at least access to full technical documentation of the property plan and construction.
  8. You must be provided in advance a copy of the rules and regulations that will apply to the property. These might include restrictions for business use, service charges, rules for the use of communal facilities and more.
  9. A full copy of the VEFA must be provided to you at least one month in advance of signature to allow you time to full review its contents.

Building Your Dream Home in France

For the educated and discerning buyer, purchasing Off-Plan in France could be the best way to get exactly the vacation home you want in the location you want it.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

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