The Property Deal of a Lifetime — Both Yours and the Viager's

Special Forward:
The following article is a collaborative effort between Sarah Potter and myself, combining our knowledge and experience on this subject. Sarah is the director of Endroit Property Pty Ltd, from Australia and has acted as a broker or “buyers agent” specifically for “viager” properties in France. It is our great fortune that she will be bringing her expertise in this area to our Adrian Leeds Group.
In 2007 I purchased a viager property — a life annuity property that took five full years to acquire, renovate and offer on the rental market. I’ve written 10 chapters about the process — as it was a saga throughout the process, but in the final analysis, well worth the effort.
Let us explain:
Put very simply, a viager property is one where instead of asking the market value for a property, the vendor is instead paid an initial down-payment (termed the bouquet) averaging approximately 30% of the property market value. On top of this, the vendor is paid a monthly annuity or pension (called the rente viagère) for the duration of their lives and in return, the vendor retains a lien or droit d’usage (rights of usage) over the property.
Viager properties are probably one of the more unusual ways to invest in French real estate. There are a number of different systems through which you can buy a viager property, but the key feature is that the transaction is usually with an older or elderly person, who wants some extra or guaranteed income for their retirement.
While the price of the bouquet is determined based on the market value of the property, determining the right level for rente payments can be more complicated. The most important factors are the age and gender of the seller, as these have the greatest impact on life expectancy (and consequently the estimated duration of the viager contract). Another factor is the price of the bouquet. If the bouquet is large, then the rente will be reduced, and vice versa. While the contracting parties may legally freely determine the amounts of the bouquet and rente, all viager transactions are closely monitored by a supervisory body at the French Ministry of Economics and Finance (the Comité Répressif des Abus de Droits).
In some ways, the viager transaction is like a
reverse mortgage, but with two major differences! Firstly, the transaction is between individuals — there are no banks involved. Secondly, unless specified, the annuity is not for a fixed term, it is for the life of the vendor.
The most common viager property transaction is the viager occupé, where the vendor is entitled to retain their tenancy of the property. This system has benefits for both vendor and purchaser: the vendor has the option to stay in their own home and earn extra money for the rest of their lives. For the purchaser there is the opportunity to purchase a property in France without having to pay the market value upfront, but with the potential of realizing significant capital gains -– sometimes well in excess of the average capital returns for the area.
Another less widely available, but very desirable, way of buying a viager property is where it is being sold as a viager libre (and no, that isn’t a type of cocktail!). The viager libre is one of those rare and fabulous things that actually almost sounds too good to be true. There is still a bouquet (deposit) and rente (annuity) to pay to the vendor, but unlike the viager occupé (occupied), where the vendor has a lifetime right to occupy the property, the viager libre is sold “empty.” This means that you, as the purchaser, are able to live in or rent out the property and thus there is an income potential from the rent, as well as the capital growth, of the apartment.

For example, there was a viager libre ground floor apartment for sale in the 7th arrondissement, advertised with a bouquet of €240,000 and a monthly rente payable to the sellers (a husband and wife in their late 80s) of €680. The apartment has a current market value of about €330,000, and it is leased for about €1100 per month. It is not hard to see how this might make a good investment! However, this apartment was on the market for exactly four days before it sold, so you have to be prepared to move quickly to snaffle one of these properties!
Of course the trick here is also to pick and choose apartments that have the most appeal as rentals, and the most potential for long term capital growth. Location and ease of access are critical! Viager properties are available throughout France, and in almost every price range, from the smallest studio apartment in Paris to a waterfront mansion on the Côte d’Azur.
In the case of the property I purchased, the situation was quite a bit different and ‘almost’ doesn’t qualify as a viager. The original purchaser died before the viager and because his heirs failed to pay the taxes, the lien fell into the hands of the State. As the second buyer, I negotiated with a State agency, purchasing the property at about half of the market value, but still the viager retained his rights of usage, even though he had moved out long ago to a relative’s home in the west of France. To obtain the rights of usage, I sought out the elderly viager who had been moved to a retirement home, offered the relatives a sum of money in exchange for the rights and eventually acquired the property. Today you will know it as “La Paris Plage” with an adjunct room known as “Le Parisol” located in my own building with an unusual and desirable feature — a large terrace! (See La Paris Plage and to read the entire story, visit Viager with a View)
The effort was well worth it — as not only is it a successful rental property, but a recent appraisal reporting its value three times for what it was paid facilitated an equity release loan that paid 100% for the apartment in Nice!
Sarah would be the first person to admit that viager properties are best when considered a long term investment -– sometimes 20 or 30 years, depending, of course, on the age of the seller. Clearly, there are also risks, particularly when purchasing viager occupé (occupied), because you never know how much you might end up paying for the apartment!
Sarah is an expert in viager properties. It certainly isn’t a system that exists in Australia. However, Sarah and her husband had been looking at buying an apartment in Paris since the mid-2000s, realizing that as a young professional couple with their own enormous mortgage in Australia, it would be difficult to afford the sort of apartment they wanted to buy. This is when she discovered the viager system, which has so far allowed her to buy two valuable apartments in the center of Paris without having a large sum of up-front cash. She has been following (and advocating) the viager property market ever since!
A bientôt,
Adrian Leeds
Editor, French Property Insider
Email: [email protected]

 
 
P.S. Sarah Potter will be speaking at the upcoming Property Investor Network Meeting about the viager as an investment on June 25th. If you wish to attend, it’s FREE the FIRST TIME for readers of our newsletters! All you have to do is register using the promotional code “Adrian.” For more information about how to book your free seat, visit Events & Conferences or if you are interested in learning more about purchasing a viager, contact [email protected] for a consultation.