US BUYERS GRAB UP DEALS AS EUROPEAN BANKS RESTRUCTURE.
Over the last 12 months US Buyers have gobbled up $1.9 billion in real estate and property-related debt in Europe. FFr 6.2 billion (a little over $1 billion) has been acquired in France alone. This is a classic example of the rule of international capital flow. "Capital flows to the highest yield at the lowest risk.
The real estate market in France seems to have bottomed out and started on the road to recovery. Vacancy rates in Paris are dropping and rents are expected to increase in the last half of the year. Some new construction projects have been announced in the suburban markets.
Over the past five years, prime commercial properties in France have lost more than 50% of their value. This loss in value has made the previously overpriced market more attractive to foreign Investors.
NEW SOLVENCY RULES APPROVED BY EU PARLIAMENT
Changes have been made to allow the risk weighting on certain commercial loans to be reduced to 50% from 100%. This should decrease interest rates on commercial properties.
To qualify for the new weighting, loans must be for less than 60% LTV and not be for speculative development.
European banks are required to maintain an 8% capital base. This means that for every $8 of capital base they have, they can loan $100.
LONDON'S CANARY WHARF SECURITIZED IN LARGEST SINGLE PROPERTY ISSUE EVER
Canary Wharf is once more in the news. Morgan Stanley is securitizing the office project in three tranches totaling $905 million. You may remember the Canary Wharf as being one of the biggest properties in the Olympia and York bankruptcy.
HOW WILL MONETARY UNION AFFECT THE REAL ESTATE BUSINESS?
May 1, 1998 is the official day for monetary union. The basket of currencies is to be locked in on Dec. 31, 1998 and the actual currency should be on the street on the 1st of January 1999. Only about 10 countries will be on the new currency in the beginning. Others will switch later. The currency will be used exclusively (in the countries that use it) in 2002.
For those countries that use the common currency, much of the exchange rate risk will be removed from cross border transactions. This should make the markets more stable and more competitive for investment dollars.
It is anticipated that the new stronger currency will replace dollars in worldwide reserves of some countries and in many international oil transactions.
BUYING PROPERTY IN FRANCE
Buying property in France is fairly easy. There are few restrictions on foreign ownership. There are some things to be aware of, however.
If the property you buy has more than a hectare (about 2.5 acres), there is an agency called "SAFER" which has an automatic right to preempt the sale in order to preserve agricultural land.
The agreement drawn by an estate agent is called a Sous-seing Prive. If the agreement is drawn by a Notaire it is called a Compromis de Vente. The buyer will bind this agreement with a minimum of 10%, held by the Notaire.
Inspections are done before the contract is signed. Contingencies are for clear title and mortgage. A non-performing buyer will lose the deposit.
The final contract, signed at the Notaire's office, is called an Act de Vente. In order to complete the closing, a copy of the buyer's birth certificate and marriage license (in French) is necessary.
French succession law does not give the owner of a property the right to leave property to a person of his or her choice, even by will, so this issue needs to be addressed before going to closing.
The buyer normally pays the legal fees and registration taxes, which are usually about 7.5%. The seller pays the estate agent unless otherwise agreed.
FIABCI HELD WINTER MEETINGS IN PARIS
Since I needed to be there anyway, I decided to write a special edition of IPN about doing business in Europe.
This is not intended to be a comprehensive guide to doing business in Europe. It is just some bits and pieces of information. If you really want to learn to do business in Europe take The CIPS class, "EUROPE AND INTERNATIONAL REAL ESTATE".