In news that no doubt sent shivers down the spines of apartment hunters in Paris, rental prices in the city this year were tagged as the most expensive in the world.

Paris leapfrogged ahead of London to win the double-edged accolade, according to the World Cities Review released last spring by the British real estate agency Savills. The average yield for rental properties in the French capital is around 4.5 percent, and various estimates put the average rent for an unfurnished one-bedroom apartment in the city center at about €1,500–€2,000 (about $1,975–$2,600) a month, depending on size and location.

However horrific the figures seem to those looking to rent in the City of Light, they will be music to the ears of investors looking to buy investment rental property in the capital. Indeed, the idea of financing a pied-à-terre in central Paris that can be rented out at least part-time has never seemed more appealing. Moreover, while the Parisian real estate market continues to defy international odds by remaining buoyant, sellers are currently more ready to take offers than they were before, so buyers searching for a rental investment in the capital are finding themselves in a win-win situation. According to Yolande Barnes, head of the Savills residential research division, “strong occupier demand” and “relatively low capital values” are two main reasons why investors are attracted to the French real estate market.

Paris is the most visited city in the world, attracting some 15 million international visitors each year. Despite the gloomy outlook in certain other Euro-zone economies, Paris’s global appeal shows no sign of weakening. Nor do prices in the world’s most romantic city show any sign of cooling off. As a general indication, the average purchase price per square meter for an apartment in central Paris is currently €9,592 (approximately $11,842, or about $1,100 per square foot), according to Numbeo, a website database of user-contributed data about cities and countries worldwide. The Numbeo website—again just to give a general idea—puts prices significantly lower outside the city center, at some €5,611 per square meter.

Legal hiccup

Despite troubles elsewhere in Europe, and a fall in property prices in almost every other area of France, Paris prices have continued to rise, and not one of the city’s 20 arrondissements has reported prices under €5,000 per square meter in more than 18 months. So the math adds up to excellent prospects. But where should you look to buy? According to Glenn Cooper, a New Yorker who has run both a property search agency and a rental agency in Paris for the last decade, the old adage is still true: location is still the overriding factor, and that means as central as possible.

Obviously the most central sectors of Paris are now accessible only to multimillionaires, with prices reaching well above €11,000 per square meter for apartments in the most affluent and desirable residential areas, particularly the Left Bank’s 6th arrondissement. If you are not able to lay hands on such large sums of cash at the moment—and Paris purchases almost always require a substantial down payment that often surprises foreigners—Cooper suggests you look slightly farther out, in arrondissements several Métro stops from the city’s hub. In neighborhoods around the Place d’Italie and the Butte-aux-Cailles in the 13th arrondissement, or around Bercy Village in the 12th and the Buttes Chaumont park in the 19th, there are still chances of finding reasonably priced apartments for around €7,000 per square meter.

There is one legal hitch in the gilded world of rental-property investment in Paris, however, which might throw a monkey wrench into the works, although Cooper says he doubts that the problem will really materialize.

Since 2005 it has been illegal to rent out a residential apartment in any French city with a population of more than 200,000 without a minimum one-year lease. Theoretically the regulation means that weekly rentals to tourists and other visitors—which is where the big financial interest lies—are illegal for apartments that have not been declared as commercial business properties. Even for those who would prefer to comply with the law, declaring a residential property as commercial isn’t always easy—because of zoning laws, for one thing—and it can greatly complicate resale later. (There are also potential insurance problems involved for weekly rentals in noncommercial properties.) But, so far at least, the regulation has rarely been enforced.

Thinking fractional

Few people were even aware of the law until 2010, when officials in Paris announced a clampdown in response to a growing concern about housing availability, and affordability, in the capital. Enforcement was transferred to the mayor’s housing agency, the Bureau de la Protection des Locaux d’Habitation, and letters sent to apartment owners.

“For the moment, this notion about stricter rules governing short-term rentals has generated a great deal of discussion,” says Cooper. “But nobody knows for sure what the ramifications will be, and it already looks as if the restrictions are not going to be enforced in the way that the original articles appearing in the press described it.”

For buyers who are not primarily investors seeking rental income, but mainly interested in a vacation property, with rentals when they are not using it a secondary consideration, Cooper sees one answer in fractional ownership—buying a property in cooperation with a group of other people, with each partner able to use the property at certain agreed times of the year. “I think this is a very good option nowadays,” says Cooper, “in light of the very high prices we’re seeing in Paris for purchases, and the rules regarding rentals.”

“Statistics show that most people visit their vacation properties four weeks or less each year,” he explains. “Fractional ownership avoids wasting precious resources by buying more than you need.” Each buyer pays only a fraction of the costs of acquiring, renovating, furnishing and outfitting the apartment. Owners share all the operating costs including taxes, insurance, utilities, and maintenance, all without the legal complications, inconvenience and potential damage problems associated with renting out a property when a single owner isn’t using it.

On the beach

Another thriving rental property market in France is the festival town of Cannes, on the French Riviera, where prices almost match those in Paris. Indeed, a few areas of the glamorous Mediterranean resort put Parisian prices in the shade, with some waterfront properties commanding more than €38,000 per square meter, according to Savills.

Cannes, like Paris, is a magnet for tourists, receiving an astonishing 9.4 million visitors per year, according to the Institut National de la Statistique et des Etudes Economiques (INSEE). A good portion of those visitors are attending one of the scores of business conferences and conventions held in Cannes throughout the year.

According to INSEE, one out of every five visitors to the Riviera is a businessman or woman on the job. Many choose one of the many grand hotels that line the seafront, but a large number rely on apartments and villas rented out on a short-term basis, and since the permanent population of the city is about 73,000, there are no legal barriers to short-term rentals of residential properties.

The most famous of these events, of course, is the glittering Cannes Film Festival, the annual movie-world bash held during two weeks in May. Another two dozen-plus conferences are held in and around the Palais des Festivals, a modern conference center that sits imperiously on the waterfront at one end of La Croisette, the city’s famous curving seaside promenade.

“Cannes is a very special buy-to-rent market,” says Claire Healy, who works for the real estate agency Attika International and also runs a rental business called Everything Cannes. “Without a doubt the best place to buy, for rental purposes, is in the ‘Cannes Banane’—an area encompassing the Croisette and the streets behind it that’s shaped more or less like a banana. Basically people want to be within walking distance of the Palais des Festivals.”

As an example, Healy describes an excellent one-bedroom apartment very near the Palais on the rue d’Antibes, a shop-filled street that runs parallel to the Croisette, priced at about €250,000. The apartment would net owners in the neighborhood of €1,200 if it were rented out for just the five days of MIPIM, the international property fair held in Cannes every March. The owners of a two-bedroom apartment close to the seafront could expect about €3,000 if they rented it for the two weeks of the Film Festival in May.

Originally published in the September 2012 issue of France Today