All about VEFA and VIR
VEFA (Sale in the future state of completion)
Often referred to as a sale off-plan, the VEFA is the sale of a property before the construction work has started. The VEFA offers many advantages for the buyer, such as reduced notary fees compared to older properties and the choice of accommodation in a new property programme. The VEFA sale process is very precise and well defined. Once you have selected your property, you are able to place an option to lock in the chosen home for a set period of time.
You reserve your property by signing a reservation contract and paying a deposit which is deducted from the purchase price. If you choose to finance your property on credit, you will need to start the process with your bank or a mortgage broker. The bank’s agreement gives the green light for the draft deed. The deposit is collected by the notary or returned if the bank refuses to finance. Payments will be made according to the schedule agreed at the time of signing and according to the progress of the work. The last call for funds corresponds to the delivery after the visit of the property and signature of the inventory of fixtures.
WHAT IS THE GFA? (FINANCIAL GUARANTEE OF COMPLETION)
The financial guarantee of completion is a compulsory insurance for real estate projects intended for housing. It is an extrinsic guarantee, which guarantees buyers the delivery of their VEFA home, even in the event of default or bankruptcy of the developer. It is the bank, as guarantor, that will provide the necessary funds for the completion of the construction of the property programme. The guarantee covers not only the structure of the building, but also all the finishing touches in the new home.
THE ADVANTAGES OF THE VEFA
A more attractive tax system
Reduced notary fees: in the case of the purchase of an old property, notary fees represent 7% to 8% of the price of the property, compared to 2% to 3% for a new property.
Exemption from property tax: buyers or investors can benefit from an exemption from property tax for a period of between 2 and 7 years. The two eligibility criteria for the tax authorities are that the property must be new and meet current standards.
A secure investment
The guarantee of perfect completion: the year following acceptance, the buyer is covered for any damage or defects. The property developer is obliged to carry out the repairs.
The biennial or good working order guarantee: for two years following acceptance, the developer must correct any malfunctions found on the property’s separable components (taps, shutters, electrical components, etc.).
The ten-year guarantee: this supplements the two-year guarantee for 10 years from the date of acceptance. The ten-year guarantee covers the structure of the building (the elements that cannot be separated from the new home) such as walls and ceilings, terraces and the roof.
Damage to building insurance: this insurance must be taken out by the developer and ensures the financing of repairs linked to the ten-year guarantee before an expert report is made on the responsibility of each party.
The VIR (Sale of renovated buildings)
The VIR, the sale of renovated buildings, is broadly equivalent to the sale in future state of completion (VEFA) which is applied in the new build.
The seller of a property, which may be for residential use or for residential and professional use, undertakes to carry out work on the property with the purchaser by means of a notarial deed. The law also requires sellers to provide a financial guarantee of completion, known as a GFA, given by a bank or insurance company. This GFA guarantees the buyer, in the event of the company’s bankruptcy, that the work will be carried out to completion. The purchaser will therefore have to pay for the work once it has been certified by an architect or project manager and as it is actually completed. Once the work has been completed, a Procès Verbal de réception will be signed between the vendor and the purchaser.
The interest, contrary to the VEFA, is that the buyer can visit the property and see the exposure, the view, the environment … Then he does not take care of anything. The seller carries out the work and retains responsibility for it until acceptance.
The budget for the work is validated beforehand, and the cost, completion times and quality are included in the notarial deed. Under the control of the notary, the seller must provide all the necessary insurance: the biennial guarantee, the ten-year guarantee, the damage to the work, civil liability and of course the GFA.
In addition to being very reassuring for the purchaser, this system offers a significant financial advantage. The cost of the work carried out is included in the calculation of the capital gains tax. This means that the purchase value of the existing building + the budget for the work carried out will be taken into account when calculating the capital gain.
The Para-hotel regime is often confused with the furnished rental regime. In reality, parahotellerie is an activity in its own right. This regime is characterised by the provision of furnished accommodation and the supply of three of the following four services in a professional manner
Regular cleaning of the premises
Provision of household linen
Reception of customers
Contrary to the furnished rental activity, the parahotel business is presumed to be professional. There are many advantages:
It is an activity subject to VAT. This is a godsend for purchasers of new properties as they can obtain a refund of the VAT credit.
Many expenses are deductible, just like the furnished rental activity, the parahotel business falls into the category of industrial and commercial profits. Thus, all expenses incurred in the direct interest of the activity is supported by the supporting documents are tools for the calculation of the taxable result.
Moreover, when the operator has considered the deficit generated by this activity as professional, it can be deducted from his overall income.
An exemption from property wealth tax (subject to conditions) for professionals whose main activity is this. The assets used in the context of this activity are exempt from property wealth tax. The terms and conditions of taxation under the IFI depend on the nature of the operator.
An exemption from capital gains tax after five years of activity in the event of the sale of the property. The capital gain from the sale is subject to the professional capital gains regime. When the activity is carried out in a professional manner, the capital gain on disposal may be completely exempt from tax and CSG-CRDS.
To benefit from this exemption, the business must have been in operation for at least five years and the annual revenue for the last two years must be less than €250,000.