The French government started leaseback in 1986 and the aim was to encourage French people to secure their pensions
in property and also to encourage the development of tourism, build low cost housing, protect historic monuments and
bring investment to under-developed areas. There are a number of plans within the leaseback scheme the most popular
of which is the RT scheme (Residence Tourisme) which caters for short term lets and provides a variety of services
to include reception, breakfast (by prior arrangement), laundry and linen services, swimming pool,
Jacuzzi, sauna, steam room etc. All the leaseback properties on FrenchLeaseback belong to this scheme.
This unique plan enables anyone to buy their dream holiday home or overseas investment property and cover a lot or all of the mortgage costs with a guaranteed rental income (typically 3 to 6%). The rental income is guaranteed by a large management company that rents the property on your behalf for typically 9 years.
This means that the rent is only guaranteed so long as the management company is solvent. Furthermore, the rents by law must be revised at least once every 3 years and sometimes every YEAR(depending on the lease agreement) and varies according to the construction cost index (INSEE) or the rent reference index. The French government agrees to offset the payable VAT (TVA) on the purchase price against that charged to the short let customers of the rental management company. This means that you will receive back a sum
equivalent to the VAT on the property at the rate of 19.6 % on new build property (renovated or refurbished properties
do not normally qualify for a 19.6% VAT rebate but they still do have a VAT rebate element).
All leaseback deals are different, in terms of rental yields and personal use. Most offer personal use, generally up to 6 weeks (although
some deals may allow you to use it for even more), but note that some offer no personal use. There are also the added
benefits of purchasing the property fully furnished and fitted with kitchen and bathroom appliances, knowing that your
property is not left empty and unattended for weeks or months at a time, and that the maintenance and upkeep is paid (mostly)
by the management company (in most residences you have to pay some co-ownership fees and the taxe fonciere).
THE SMALL PRINT
If you resell your property as a leaseback during the first 20 years then you do not have to repay the VAT, but if you sell it as a normal property during the same period then you do pay back the VAT pro-rata
(it reduces by 5% each year, reaching zero after 20 years).
Leaseback properties are purchased with a commercial lease, which has certain repercussions in French law. After
the initial lease period, the investor
(who is usually the owner of the freehold of the property) can usually renegotiate the lease with the management
company or make other letting arrangements. It is possible to exit most lease agreements but note that french law favours the
tenant (the management company) which gives him the right to claim compensation if you exit. This cannot be negated by any clause in the lease. This is a complex subject and
rather than attempt to address it here you can contact us directly to discuss any queries you might have. In some cases the owner will
never be permitted to use the property for their main residence. The contractual terms of the original purchase contract
and of the original lease may also have prohibitive clauses whereby the owner may never be able to fully use the property,
or even sell the property, without paying the developer or the management company a substantial premium.
You must pay the "taxe fonciere". This is a land tax. The size and location of the property
determines how much is paid and owners of
new properties are partly exempt for the first two
years. The tax is paid by the person owning
the property on 1 January of each year with
payment due in the final quarter of the year.
However, if the property ownership changes
then the purchasers must usually reimburse
the sellers for their share.
IN MY OPINION
I believe leaseback can be a good investment if you understand what you are buying. But some leasebacks are better than others. So do your homework.
- Choose your location well.
- Choose a developer and management firm with good track records.
- Check your paperwork thoroughly. We will give you a general English translation of these.
- If you require finance then borrow in Euros from a French bank.
In addition you should apply all the usual considerations to the investment property that you would apply to any
investment property.
- Is the development close to other amenities, shops and services or is it isolated?
- Will these areas still be as popular in 20 years' time?
- Is the price fair?
- Is there a strong private letting market in the same location?
Bonne chance!
