French Chateaux: A cheap dream hard to finance
Getting a loan for a chateau is complicated for a French resident. For non-residents … it becomes even more challenging (but not impossible). What reasons can a lender have to refuse to finance a property of this type?
1 – Price & offer
It must be said… there is no lack of offer. The French market has seen an explosion in the number of chateaux-type of properties offered for sale: 1,500 compared to 800 ten years ago (out of 20,000 chateaux in France). This phenomenon is accompanied by a fall in prices, by 30% on average. Buyers can now find a chateau for less than € 800,000, which is the equivalent of an 80m2 apartment in center Paris.
To make it short, for less than 10,000 euros per square meter, it is difficult to find accommodation in Paris. In Creuse, it is possible to own a castle for less than 500 euros per square meter.
This explains why owning a chateau can quickly become a dream-come-true in the buyers’ mind as it is quite affordable (on a purchase price point of view). Who hasn’t wanted to have land, a chateau and their own flag?
2 – Maintenance costs
This is where it starts becoming a challenge. Maintenance costs and expenses represent a significant sum, corresponding to at least 20,000 euros per year for a medium-sized chateau, about 80,000 euros for a bigger chateau, or even 100,000 to 150,000 euros for a very big chateau with employed permanent staff (such as a gardener, handyman, etc…).
To resume, a Chateau will cost you per annum about 1% to 1.5% of the purchase price.
3 – A “too niche” market
There are 400 chateaux in France that change owners per year. We must also take into account that it is not uncommon for a couple to buy two or three times the same chateau during its life. The chateau market is therefore a very closed sector where the offer is way more important than the demand. Count an average of one and a half years to find a buyer for a chateau.
In the eyes of the bank, that represents a risk for them as should there be a default of payment and should they need to sell the property, it would be difficult for the bank to get their money back ‘’quickly’’.
4 – Is it a good investment ?
With a chateau, the return on investment is generally low (if existent) In fact, you should definitely turn the problem the other way around by asking yourself: “How will I make it less costly” And on top of that, chateau prices have been falling every year for a decade.
For the bank, all the red lights are on. They want to finance a property with a potential to increase in value to reduce its exposure and maintain its guarantee if the client can’t pay the debt. Though the maintenance costs cannot be taken into account officially to calculate the debt-to-income ratio, it is still in the back of their head.
A chateau is interesting for passionates and investors who already own a consequent quantity of assets and have enough liquidity to purchase it cash.