Acquiring a property on plan – The sale in a state of future completion

The sale in a future state of completion or VEFA is a contract used in the sale of real estate to be built.

The VEFA contract is regularly referred to as a sale on plan, since, at the time of its signature, construction has generally not yet started. In this contract, the seller immediately transfers to the buyer his rights to the land, as well as, where applicable, ownership of the existing buildings. Future works become the property of the purchaser as they are carried out; the purchaser is required to pay the price according to the progress of the work. The seller retains the powers of owner of the work until the acceptance of the work.

Civil Code – Articles 1601-1 to 1601-14 – On the sale of buildings to be built

In order to guarantee the buyer the completion of his newly built property, the seller grants the buyer a completion guarantee issued by a reference bank of the seller. In the event of the seller’s failure to perform, the bank will guarantee the proper completion of the property under construction in place of the seller.

Here are the steps in the event of a sale in a state of future completion:

• You sign a deed of sale in a future state of completion which provides for payment of the total price in instalments, depending on the progress of the work.
• The promoter is obliged to offer you a completion guarantee which will be attached to the notarial deed of sale and registered with him. As a guaranteed parcel, a bank undertakes to pay the sums necessary for the complete completion of the construction in accordance with the terms of the contract, in the event that the seller fails to fulfil its completion obligation.
• The bank may replace this completion guarantee with a refund guarantee. In this case, they undertake to reimburse the purchaser for the payments made by the latter, if the sale is cancelled due to failure to complete.
• In addition to the deed of sale, you also sign a co-ownership agreement setting out the common areas.
• A co-ownership by-law defines, between the co-owners, the rules of living together.
• When you receive your new home, an acceptance protocol is established stating any deficiencies and defects. By countersigning this protocol, the manufacturer undertakes to carry out the necessary work as soon as possible.

A complete completion report of the building, signed by the parties, is submitted to the bank, which discharges it from the completion guarantee. The 10-year guarantee granted by the builder covers the building from hidden defects for 10 years.

Establish a financing plan

The financing plan includes the cost of the components of the project and the various financing methods to determine the amount to be borrowed. To help you establish your complete financing plan, we present below the major part of the expenses to be incurred when acquiring or building a home.

a. The purchase price of the land or building is fixed by a compromise or by a contract established between the seller and the buyer; for a new construction, the price and details of execution must be specified in the construction contract. For the construction or renovation of a dwelling, you can benefit from the reduced VAT rate if the dwelling is used as your main residence.

b. Deed of sale fees (also called “notary fees”) concern the establishment of a notarial deed of sale as well as the registration formalizing your right of ownership. Your notary will inform you about the exact amount of these costs.

c. Mortgage fees relate to the notarial deed of loan opening and the registration of the mortgage registration for the benefit of the bank at the Mortgage Office. Mortgage fees are payable through your notary. The mortgage represents a guarantee required by the bank: the bank thus reserves the right to sell the property in question if the debtor can no longer meet his obligations. This extreme solution obviously only targets situations that are not resolved.

d. Outstanding balance insurance, your reference bank generally asks you to take out this insurance and/or other life insurance policies in order to protect your loved ones in the event of premature death.

e. Connection costs, you must, if necessary, take into account ancillary costs, such as connections to water, electricity, telephone, possibly gas or a cable television network. The local authority concerned will inform you about the taxes related to your property.

f. In addition, administrative fees will also be charged when your loan is made available.

The personal contribution

When you apply for a mortgage, the bank normally asks you for a personal contribution depending on your situation and your repayment options. This may vary depending on your wealth situation.

The real estate loan

A home loan is the ideal way to finance your purchase of a property. It is suitable for financing housing for your personal use or for rental. Any natural or legal person can benefit from a real estate loan if he or she has sufficient stable income to repay the loan.

Interest rates

There are two types of rates for your home loan:

– A variable rate to adapt to market conditions. This type of rate allows you to make early repayments without penalty.

– A fixed rate with constant monthly payments that protects you from any unfavourable rate fluctuations. This mortgage allows early repayments subject to penalties. Under certain conditions, the fixed rate can be revised; it will then be reviewed after 5, 10 or 15 years, and its duration is set according to your wishes and your ability to repay.

If you choose a variable rate, you have the choice between adjusting your monthly payment when the rate changes and adjusting the duration of the loan by keeping your monthly payment constant (in this case, when the rate decreases, the duration of the loan decreases and vice versa) If you choose a fixed rate, you have the choice between a fixed rate over the entire duration of your loan and a revisable fixed rate, i.e. established for a certain duration at the end of which you will again have the choice between a fixed rate and a variable rate.

You can of course combine these types of rates.

Taxation

Registration fee

Real estate acquisitions are subject to a registration fee collected when the notarial deed is signed before a notary.

The registration fee varies from 7% to 10% depending on the location of the building.

Any taxpayer who acquires a property for personal housing purposes has a tax credit. This is limited to €20,000 per purchaser and €40,000 for a couple in the event that the tax credit applies to each purchaser individually. This amount can be used only once or as and when the duty does not reach the total amount of the tax credit at the time of acquisition.

The granting of the tax credit is subject to certain conditions:

• The acquired property must be occupied within 2 years. This period is set at 4 years for building land or buildings under construction. Failure to comply with the occupancy period shall give rise to full reimbursement granted with statutory interest from the day on which the allowance is granted.
• The effective and personal occupation must be for a period of 2 years. Failure to respect the period of occupation gives rise to a full refund of the tax credit granted with legal interest from the day on which the allowance is granted.
• Renting or using it for a purpose other than personal housing during the 2-year period also results in a full refund of the tax credit granted.

After two years of occupation, the purchasers are free to dispose of their property, the allowance being definitively acquired.

Value added tax

To stimulate housing construction, the State shall, upon prior request, submit eligible construction works for new housing to the super-reduced VAT rate of 3%, provided that the housing is used for main housing purposes. In this case, work performed by the trades is directly invoiced at a rate of 3%.

It is also possible to claim a refund of the difference between the standard VAT rate (17%) and the reduced rate. In this case, the person who carried out or had carried out the eligible work may request a refund of VAT from the Administration de l’Enregistrement et des Domaines at the end of the work, on presentation of all invoices.

The total amount of the tax benefit resulting from the application of the super-reduced rate of 3% may not exceed €50,000 per dwelling created.

The tax benefit is to be returned in full with interest at the statutory rate from the day it is granted, if the property is used for purposes other than as a main residence within two years from 1 January of the year following that in which the eligible work was completed. The refund is the sole responsibility of the beneficiary of the tax benefit. Failure to do so within this period shall be treated as an assignment for purposes other than personal habitation.

Ensure

Outstanding balance insurance

Outstanding balance insurance (ASRD) allows you to insure a certain amount of capital in the event of death for a specified period of time. Under a mortgage loan, if the insured dies during this period, the insurance company undertakes to repay the balance of the loan up to the sum insured to the beneficiary. In this way, relatives can be protected from the financial charges associated with the loan in the event of the insured’s death. In addition, as part of a credit life insurance policy, you can benefit from tax deductions.

Life insurance in the context of a home loan

In addition to being a profitable long-term investment, life insurance can be integrated into a home loan while providing you with tax benefits. The capital that is provided at the end of your insurance contract can be used as a guarantee in the event of death.

The borrower has the option of paying this insurance premium by annual premiums or by a single premium. The amount of insurance depends on the amount borrowed and the age of the insured.

Ten-year – biennial insurance

The ten-year insurance covers all those involved in the act of building, within the framework of a contract of lease, who are likely to be liable for ten years on the basis of Articles 1792 and 2270 of the Civil Code.

The main purpose of this insurance is to provide financial compensation for damage caused to the insured work, to which the insured could be held liable in respect of the damage caused by the work on the basis of the ten-year liability.

The insurer shall carry out an inspection or appoint a technical inspector before issuing the guarantee.

The insurance has a fixed duration of 10 years from the date of acceptance of the work.

Ten-year insurance covers serious defects that may affect a major structure.

The biennial insurance covers for a period of two years any defects that may affect a small item

Low energy consumption

An energy-efficient building of low energy consumption of energy class allows a rational use of energy in order to obtain the following advantages:

In terms of energy savings, a building in class A consumes the equivalent of 4 m3 of gas per year per m2 of living space, compared to 20 m3 of gas per year and m2 of living space for the average existing building. The reduction in gas consumption reaches 80%.

In terms of comfort, a building in class A allows higher temperatures on the inner sides of walls and glazing, which significantly reduces the feeling of cold.

Thanks to the waterproof envelope, the sensations of cold draughts are eliminated. As the losses are so low, the water temperature of the floor heating can be limited to 30-35 degrees, which considerably increases the comfort and acceptance of the floor heating, as well as the efficiency of the boiler. Finally, the dual-flow mechanical ventilation with integrated filter ensures hygienic air renewal. It also effectively removes various pollutants, humidity and carbon dioxide from the apartment, even if the windows are closed for a long time. During the summer months, the increased insulation of the building, the external blinds, as well as the dual-flow mechanical ventilation, can slightly cool the blown outdoor air and prevent the building from heating above acceptable levels. In both summer and winter, comfort is easily maintained.

In terms of preserving the building’s structural elements, the increased thermal insulation, waterproofing and mechanical ventilation contribute to reducing the risk of condensation and therefore the appearance of moulds in the interior of homes to a minimum.

All this is achieved by:

•     Increased insulation of the outer shell
•     Waterproof building envelope
•     High-performance triple glazing
•     Good solar orientation
•     Outdoor blinds
•     Condensing gas boiler
•     Double flow mechanical ventilation with heat recovery, individual for each apartment
•     Underfloor heating with low water temperature