Definition
Viager is a French real estate transaction where a property is sold on a reverse annuity basis. A buyer makes a down payment, followed by regular payments for the seller’s remaining life. The seller continues living in the property until their demise, when full ownership transfers to the buyer.
Key Takeaways
- Viager is a real estate transaction originating from France, where a property is sold on a reverse mortgage basis. The seller, often an elderly person, sells their property but continues to live in it until they pass away.
- The buyer pays a lower initial sum (called Bouquet) and then monthly payments (known as Rent) for the life tenure of the seller. The actual sale and transfer of the property take place after the seller’s death.
- Viager provides a means for older individuals to receive a steady income stream while staying in their home, and for younger investors to eventually acquire property at potentially lower costs given the uncertainty around lifespan.
Importance
Viager is a unique real estate transaction predominant in France, which plays a critical part in the financial world, mainly for those dealing with real estate investment and planning for retirements.
Essential aspects of Viager include its potential to provide a regular source of income, typically to elders, by selling property rights while still retaining residence rights until death.
The buyer, on the other hand, often pays a lower upfront amount (bouquet) and commits to a regular payment (rent) until the seller’s death.
Given demographic trends towards an aging population, Viager can serve as a significant financial tool enabling seniors to supplement their income and providing an alternative route for investors to acquire property, sometimes below market prices.
Hence, understanding Viager is crucial from investment, estate planning and socio-economic perspectives.
Explanation
Viager is a unique real estate transaction predominantly used in France and other parts of Europe, notably serving as a financial planning tool. The principal purpose of the viager model is to provide a solution for individuals, typically senior citizens, who are asset-rich but cash-poor.
This unique contract allows them to sell their property while retaining the right to continue living there for their remaining life, thereby converting a non-liquid asset (real estate) into a source of regular income, which can particularly benefit retirees for their living expenses. The viager scheme is fundamentally a bet on longevity.
The purchaser agrees to buy the property by making a down payment (bouquet) and further by pledging to pay a regular sum (rent) until the seller’s death. Should the seller live longer than expected, it may lead to the buyer paying more than the market price for the property.
Conversely, if the seller dies prematurely, the buyer might acquire the property at a lower cost. The viager model provides a platform for wealth redistribution and allows potential real estate buyers an opportunity to invest who might otherwise be stapled due to high upfront costs.
Examples of Viager
Jeanne Calment Deal: In 1965, a French lawyer named André-François Raffray agreed to pay Jeanne Calment, a 90-year-old woman, a monthly sum of 2,500 francs until she died, hoping to secure her apartment in Arles, France, cheaply upon her death for himself. This is an example of a viager transaction. However, this turned into one of the most famous viagers as Calment ended up living until the age of 122, becoming the longest confirmed human lifespan ever recorded. Raffray himself passed away before Calment, at the age of
Case of André and Marie Balot: In 2002, a radio presenter André Balot and his wife Marie, a former ballerina of the Paris Opera, sold their 170-square meter apartment on the Avenue Victor-Hugo in Paris through a viager. The buyer paid an estimated 600,000 euros as a lump sum (bouquet) and then a monthly fee (rent) determined by the couple’s age and life expectancy. It appeared to be a win-win deal with the couple getting financial security in their later years and the buyer potentially acquiring an upscale real estate at a fraction of its cost post their demise.
Vallauris Property: In 2017, a property in Vallauris, near Antibes on the French Riviera, was sold en viager. The selling price was
2 million euros, with a down payment of 600,000 euros and a monthly rent of 2,000 euros for a woman in her seventies. The value agreed upon was significantly less than the market price of around 2 million euros allowing the buyer to eventually gain a prime property at a significantly lower cost, provided the person receiving the rent passes away within the estimated lifespan.
FAQs about Viager
What is Viager?
Viager is a real estate transaction common in France, where a property is sold on a reverse annuity basis. The buyer or “debouire” makes a down payment (bouquet) and then continues to make monthly payments (rent) across the seller’s lifetime, known as “viager”.
What happens when the seller (credirentier) dies?
Once the seller or “credirentier” passes away, the buyer stops making payments and fully owns the property. If the seller lives longer than expected, it could potentially result in the buyer paying more than the market price. Conversely, if the seller’s death occurs sooner than anticipated, the buyer could gain a property for less than its market value.
What if the buyer defaults on the payments?
If the buyer stops making payments, the contract can nullify, and the property reverts back to the seller or their estate. The buyer can also lose all that has been paid until that point. Hence, it is significant to ensure a reliable income stream before going for a viager contract.
What are the pros and cons of selling a property en viager?
Selling en viager provides a method of receiving a reliable income, generally higher than traditional rent for property owners. The downsides include potentially undervaluing the property if the seller lives far longer than anticipated. Additionally, the legal process can be complex, and the seller may need to pay for expensive life annuity insurance.
What are the pros and cons of buying a property en viager?
From a buyer’s perspective, buying en viager allows acquiring a property without needing to pay the full price upfront. Moreover, they can potentially get a property at less than market value if the seller’s life expectancy is shorter than anticipated. However, there are risks of overpaying if the seller outlives the expected lifespan, and there is also a lack of certainty with this method.
Related Entrepreneurship Terms
- Life Annuity
- Real Estate Sale
- Bouquet Payment
- Occupancy Right
- Freehold Property
Sources for More Information
- Investopedia: A comprehensive website that provides definitions and explanations of financial terms and concepts, including “Viager”.
- Wikifin: An educational platform that offers information on a wide variety of financial topics, including “Viager”. Available in French.
- Encyclopedia Britannica: A respected source of information on a multitude of topics, including financial terms such as “Viager”.
- The Balance: A finance-focused website that offers guides and explanations on various financing and investing terms, including “Viager”.
