French News Archive

Property Market

French Rental Property Investment Schemes

Friday 08 June 2018

Several recent cases in the French courts illustrate the care that is needed in considering the purchase of off-plan investment properties in France.

For many years the French government have sought to encourage the development of the private sector rental market through the provision of tax incentives to investor landlords.

The schemes have tended to adopt the names of the government ministers who introduced them, such as Pinel, Duflot, Scellier, Robien, Borloo, and Besson.

They have been able to do so with remarkable success, and these incentives have been one of the primary drivers for the new-build housing market.

However, they have become the victim of their own success, for a large number of schemes have been developed which have failed to live up to their market expectations.

There have also been a number of corruption scandals with such schemes.

In recent years the government have introduced new controls on these developments, notably by a tightening of the geographic areas where the tax incentives are available.

Three recent cases in the French courts illustrate some of the problems that have occurred.


The first case concerns a judicial investigation that has been going on for 10 years, in which 14 property and financial professionals have recently been charged with fraud.

At the centre of the case is an asset management company based in Aix-en-Provence called 'Apollonia', who advised private investors on property rental schemes that offered tax relief and ‘guaranteed’ rents.

Those charged include six senior managers of the company, three notaires, and five bankers from Crédit immobilier de France and GE Money Bank.

The company organised the mortgage finance for the investors, credit which Apollonia assured was risk-free, due to the rental income and tax benefits that they stated would cover the monthly mortgage payments.

From 1998 to 2009 the company sold thousands of housing units, with some investors borrowing several million euros.

However, it transpired that the apartments had been substantially overvalued by up to six times their true value, with estimated rents that were similarly inflated.

As a result, many investors found themselves over-indebted, unable to meet their mortgage payments or to sell their properties.

Whilst the management company seems to be responsible for the falsification of investors' account statements and the over valuation of prices and rental values, it would seem that several bankers were either negligent or deliberately closed their eyes.

Evidence in the case suggests, for example, that the Crédit Immobilier de France Rhône-Alpes-Auvergne granted loans based solely on the file compiled by Apollonia, without verifying it, and without ever having themselves communicated with the investors that took them out.

In addition, it seems that all the banks involved became aware of the management company's "harmful practices" in October 2006.

However, with the exception of Crédit Mutuel, all of them continued their collaboration with the company until 2009, when the first charges in this case were laid.

It seems the banks involved also ignored the fact that Apollonia, was not licenced to act as an intermediary between investors and credit institutions, contrary to the law.


In a more recent case in the department of Picardy, three directors of the property development 'Finaxiome' have been charged with fraud in connection with prospective rental developments that never saw the light of day, but for which private investors had paid substantial deposits.

A notaire is also implicated in the case.

The victims claim that they had made advance payments on the basis of false progress reports of works.

Finaxiome, which launched around 20 property programmes throughout France, each comprising between 50 and 60 homes, went bankrupt in 2012 and was unable to complete the construction of housing.

According to the association of buyers that has been set up to bring the case, millions of euros were paid by the investors and the whereabouts of the money is unknown.


In a third case that was heard in the appeal court in Montpellier, a developer was ordered to pay €140k in damages to an individual investor for losses incurred on an investment property.

According to evidence produced in court, the developer 'Omnium' (later called Stellium Immobilier) in 2005 sold to the investor a new apartment in the town of Carcassonne for €168K under a government sponsored investment scheme called 'Robien', which offered tax relief based on an accelerated rate of depreciation on the property.

The promotional brochure on the development stated that there was a strong rental demand for such properties and that it offered investors the possibility of building a long-term safe investment.

However, the investor concerned had been unable to let the property for the minimum duration that would have enabled them to benefit from the tax advantage that was available, and they had also be obliged to drop the rent by 14%, from €563 to €484 per month.

In addition, the investor learned that by the end of 2008 the market value of the property was 50% lower than the initial purchase price.

The court determined that the investor had lost €18K in rental income due to vacant letting periods and reduced rental, a further €18K loss of tax advantages, and €100K due to the initial over-valuation of the property.

Whilst these cases illustrate the risks associated with new-build rental investment schemes in France, there are also many successful developments, in which we know some of you have invested and from which you earn a good return. As always with investments it is about making the right choices, an often difficult task, we acknowledge. 

UPDATE: Since these cases there has been a change in the law to strengthen consumer protection, which we will cover in a future article. 

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