We all love the idea of a holiday home in la belle France; the food, the wine, the joie de vivre, and let’s not forget the investment potential.
But, for many, owning in France can mean one or two rushed trips a year mainly taken up with DIY and admin, and the rest of the year paying the mortgage and bills.
So wouldn’t it be nice if you could own abroad, and enjoy a few weeks away every year, and some healthy capital growth, without the expense, the maintenance, and the worry over leaving the property empty most of the year?
The French government’s ‘Residence de Tourism’ scheme (aka, leaseback) is a way to buy a property in France at a discounted price and cover some (or all) of your mortgage costs by handing it over for rental for most of the year.
As the owner you are usually (though not always) allowed to spend an allocated number of weeks each year.
The rest of the time it is rented out by a managing agent, with the marketing, maintenance and costs covered, for between nine and 20 years.
©iStockphoto.com
©iStockphoto.com
Leaseback has long been popular with the French as a way of boosting their pensions, but it is only just capturing the imagination of British investors.
Darren Hunt, who lives in Dubai, has recently bought three properties in France to take advantage of the investment potential of the leaseback scheme.
"I was attracted to leaseback after losing £50,000 on the stock market in a week," says Darren.
"I was looking for something not so risky to invest my money into. I’m a keen snowboarder and travelled to the French Alps three to four times a year. The main attraction was that if you put a reasonable sized deposit down then they will be self-financing."
French inheritance laws mean that many properties are owned by several family members who can’t decide what to do with them. As a result homes stand empty, while the demand for holiday residences remains high.
So, to boost tourism, over the last 20 years the French government has introduced various leaseback schemes.
In return for handing over your property you receive a guaranteed rental income of between three per cent and six per cent (which increases, usually every three years, in accordance with the French construction index.
You also buy at a discounted price due to a VAT waiver that equates to a 16.4 per cent discount off the market price.
"The first one I bought was £136,000," says Darren. "I put 30 per cent deposit down and claimed the French VAT back, so really the deposit only cost me around ten per cent. It takes around 18 months for the VAT to be claimed back."
In order to qualify the property must have a ‘Residence de Tourisme’ status. The properties can be apartments, duplexes, ski chalets or villas, but they must be furnished (in a style chosen by the developer) and meet a high, often luxury, standard.
In order to qualify for the full VAT discount the property must be a new-build. Refurbished properties may only be eligible for a 5.5 per cent VAT waiver.
Leaseback properties are usually in popular tourist areas where the best returns and significant capital growth possible are likely.
Popular locations for leasebacks are Paris, the Mediterranean coast, the Atlantic coast and the Alps.
Generally for between one week to six weeks a year. The number of weeks you can use is fixed by your lease, but you should be allowed flexibility on the weeks you choose, as long as you decide well in advance each year.
The amount you use the property can affect the percentage return you get, and it is important that you choose a development that offers you the right amount of usage - this is not negotiable later on.
Some properties are for investment purposes only and don’t offer a usage option, while others offer holiday vouchers, or a percentage off the cost of staying at the development.
Nigel Morton from Leaseback Investments says that 80 per cent of his customers are looking for pure investments, and don’t want to use their properties as holiday or retirement homes.
Mark Whitbread, who bought a studio flat for €108,000 in Louveciennes on the outskirts of Paris through the Property Association, was simply looking for a good investment.
"If I go to Paris I’ll stay in a hotel," says Mark. "But if I really wanted to use my apartment I could stay as a paying guest. What I wanted was an investment, an income in the future, and this is great because it’s fully managed. I’ve got guaranteed rental for 11 years, which I can extend to 20 years, on a 4.3 per cent return.
"And, at a conservative estimate, I would expect the value of the property to go up five per cent a year."
For a leaseback you would normally need to put down a 20-30 per cent deposit and 3-5 per cent legal costs, totalling 23-35 per cent of the gross price of the property. But, with the VAT rebate, the initial investment, fully furnished and ready to rent, would only amount to 7-17 per cent of the price tag.
Theoretically you should be able to access a mainstream French mortgage, but lenders may be picky about investing in leaseback properties, unless they are in certain areas or with well-known developers.
Tahminae Madani from France Home Finance says that although things are changing fast, getting a mortgage in France can seem confusing for British customers, and she advises that you will save time and money by using a broker.
But, if you decide to go it alone, Tahminae says try and get straight through to the department in the bank that deals with foreign investors. Most banks will have bilingual staff, but you may need one who is also ‘bi-cultural’ and can explain the French system.
If you encounter problems raising funds, as a last resort, your developers may have an arrangement with a bank (often those actually funding the development) though the rates or the terms of such a scheme are unlikely to be competitive.
Many people are put off by the legal paperwork involved, including the prospect of dealing with the French taxation system, which can be complex.
It is vital to seek out expert help with all the legalities and financial administration.
Mark Whitbread speaks basic French, but says that the transaction was definitely made easier by the help he received from his mortgage brokers, and estate agent.
"Most of the documents came through in French, and I just scanned them into my PC and sent them through to France Home Finance or the Property Association. It wasn’t too much hassle."
Others are put off leasebacks by the long-term nature of the investment and modest returns.
Darren Hunt says: "You will not get rich quick with leaseback but if you want a long term investment which is very safe, but with much higher returns and less risk than say index or stock-linked investments, then it's good."
Although, as the freeholder, you can sell it at any time, if you sell before you have owned a property for 20 years it would have to be sold with the residue of the lease still in place, and you would have to return a proportion of the VAT.
And, if you decide not to renew the lease during the 20-year period, you can incur heavy penalties, typically one year’s rent.
- Just because the scheme has the seal of governmental approval doesn’t mean you can’t get your fingers burnt by unscrupulous builders.
- Before parting with any money always check the financial health of the developer and the guarantees and insurance provided. A good indicator to look for is the Qualitel mark [www.qualitel.org].
- Visiting the site and chatting to the locals is always recommended. But, though you may see a show house, you are unlikely to be able to see your actual property as most leasebacks are bought off plan,
- Lastly, if a scheme is almost completed and properties remain unsold, be suspicious - there may be a good reason why.
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