I've been looking at French leasebacks... most are offering 4% return on a 9 or 10 year lease. This means that the return will cover most of the cost of the mortgage. Sounds good so far... but what I'm interested in is the resale potential. After 10 years of hammer from holidaymakers the apartment will be in need of refurb and my lease will have ended. If the no VAT French policy continues and the market is over saturated with Leasebacks, will anyone want to buy my apartment ? I have seen some ex-leasebacks in Chamonix which looked grim to say the least.
Anyone got any thoughts ?
Full Version: French Ski Resort - Leaseback Apartments
ski resort are facing snow shortages which seem to get worse by the year. Even above 1800m Xmas and new year snow is more artificial than natural. France enjoys the biggest ski resorts and ski tourism industry in the world, school holidays have been tuned in order to multiply the february peak weeks. In les Arcs, selling secondhand timeshare may take half a decade. The most interesting acquisitions according locals in les Arcs a couple of years ago were high quality flats with outdoor stone like looking walls and quality wood inside in small buildings. These sold out very quickly. Beware of timeshare companies or real estate management companies which overcharge or badly supervise/manage running costs and make you pay back with time what you may have saved when buying. If you want to buy, I'd say quality, small building, over 1800m. Another option would be buying in a real village (1000-1200m), which can be a good summerplace as well. Some are hardly touched by new constructions. Hints: Bonneval, Villaroger. Last but not the least hint: when buying in a ski resort go and see during the summer how it looks like there may be some surprises. Avoid concrete hills such as Flaines or La Plagne, tall buildings, avoid at all costs being to close to the elevators in big constructions, the sound of a herd wearing ski shoes is a noisy one, the drunken herd at night can even be noisier.
And avoid leashold, take freehold only.
The french market is probably overflooded with offers. Renting looks cheaper by the year, lastminutewise. If you're going to spent two or three months a year in it, buy after the crash. If it's for an investment only, just don't invest in french ski resort it's probably too late, even after the crash. Ok for small villages, otherwise check Czech or rather (should I say this?) Bled Bochin in Slovenia, very praised by the Whermacht's CO during WWII for VERY GOOD reasons. If you print banknotes I'd recommend Saint-Moritz, of course, anytime.
The seems to be some confusion about the leaseback scheme.
The Leaseback scheme was established in France in 1976. The scheme works by purchasing a freehold property which is then leased back to the developer or a management company. Under the leaseback scheme the French government refunds the VAT of the property (currently 19.6%).
The purchaser can also enjoy periods of free usage through the year, depending upon the terms of the lease. The developer or management company is responsible for all the maintenance of the property including the maintenance of furnishings which are typically included in the purchase price. The developer is responsible for insuring the building and contents. It also pays for many of the local taxes and all the utility costs.
The owner is then guaranteed a rental income. The net return is typically 4% to 7%, which is index linked annually to construction costs. Tax allowances apply in respect of interest payments, legal expenses etc. The lease typically lasts for 9 - 11 years, after which the management company has the option to renew or the property can be sold or rented out privately. If the property is held for 15 years there is no French Capital Gains Tax.
I deal with all the major developers in France and specialise in leaseback properties. As such i am not plugging any particular developer or location. The properties are all over France and are listed on the website at http://www.esprit-consultants.co.uk
The website is full of relevant information and tries to outline the pros and cons. I will be pleased to answer any specific questions.
I've done a lot of research into the leaseback scheme over the last year.
It isn't a terribly bad scheme, there are probably worse ways to invest your cash.
You sign up (usually 9 or 11 years) with a French leaseback company (and they're reputable companies,usually around for over 20 years).
Basically they manage the property for you, and return the property in the same condition after the lease (supposedly).
Believe me, after 10 years of tenants, you will need to redecorate. At the very least.
I probably don't need to tell you what an eighties property looks like after 20 years!
After the term of your mortgage you own the property outright.
The goverment does refund you the VAT, but bear in mind when you sell the place you have to repay this, on a pro rata basis.
The thinking behind these schemes (and they're not new) is that they create employment by encouraging investment, usually in economically deprived areas.
An example: In Les Arcs 1600 there are apartments that were built in the seventies and sold as investments.
Many are now paid off, and there's no incentive to rent them out, the owners don't need the income.
The result is that Arc 1600 is dull as dishwater.
There are now new leaseback apartments being built, so the owners will have to rent the properties to visitors.
This creates consumer demand, visitors have to eat and drink, bars and restaurants flourish, shops open, ski-lifts get used, and most importantly jobs are created for the French economy.
Happy citizens vote for politicians, just like they do in England.
My concerns lie with the current low yields (usually around 3 to 4%, nett), and the management company usually take fairly juicy fees.
There's no free lunch.
If you could buy a place and manage it yourself that would possibly be better and far more lucrative.
But managing a French property from Manchester may not be the easiest thing in the world.
Business opportunity anyone?
If you could find a forced seller it could be worth a shot, and you get a lodge/apartment you can use a few weeks a year.
Personally I wouldn't buy a new build, there are hefty premiums on these, and the rental demand hasn't been established.
I'm also concerned with over-supply issues, we can all see how high prices have created a construction boom.
This will lead to diminishing rental opportunities. You'd want to buy a property in a prime location.
Anyway definitely a far better investment than a 2 bed "luxury" flat in Basingstoke.
It isn't a terribly bad scheme, there are probably worse ways to invest your cash.
You sign up (usually 9 or 11 years) with a French leaseback company (and they're reputable companies,usually around for over 20 years).
Basically they manage the property for you, and return the property in the same condition after the lease (supposedly).
Believe me, after 10 years of tenants, you will need to redecorate. At the very least.
I probably don't need to tell you what an eighties property looks like after 20 years!
After the term of your mortgage you own the property outright.
The goverment does refund you the VAT, but bear in mind when you sell the place you have to repay this, on a pro rata basis.
The thinking behind these schemes (and they're not new) is that they create employment by encouraging investment, usually in economically deprived areas.
An example: In Les Arcs 1600 there are apartments that were built in the seventies and sold as investments.
Many are now paid off, and there's no incentive to rent them out, the owners don't need the income.
The result is that Arc 1600 is dull as dishwater.
There are now new leaseback apartments being built, so the owners will have to rent the properties to visitors.
This creates consumer demand, visitors have to eat and drink, bars and restaurants flourish, shops open, ski-lifts get used, and most importantly jobs are created for the French economy.
Happy citizens vote for politicians, just like they do in England.
My concerns lie with the current low yields (usually around 3 to 4%, nett), and the management company usually take fairly juicy fees.
There's no free lunch.
If you could buy a place and manage it yourself that would possibly be better and far more lucrative.
But managing a French property from Manchester may not be the easiest thing in the world.
Business opportunity anyone?
If you could find a forced seller it could be worth a shot, and you get a lodge/apartment you can use a few weeks a year.
Personally I wouldn't buy a new build, there are hefty premiums on these, and the rental demand hasn't been established.
I'm also concerned with over-supply issues, we can all see how high prices have created a construction boom.
This will lead to diminishing rental opportunities. You'd want to buy a property in a prime location.
Anyway definitely a far better investment than a 2 bed "luxury" flat in Basingstoke.
There are a number of misconceptions regarding leaseback. The following explains the general terms of leaseback.
What is a typical return, and is it net of all charges?
The guaranteed income is up to 6% per annum, although typical leases are from between 4% and 6%. This is a fixed income as specified in your contract and is guaranteed whether the property is rented or not.
The income is also index linked to construction costs and is paid after deduction of all day to day expenses, which are met by the management company.
Who is responsible for the day to day running of the property?
The management company is responsible for fully maintaining the property. Clearly it is in their interest to maintain a high standard to ensure maximum occupancy levels.
All utility, maintenance and insurance costs are met by the management company. The purchaser is only responsible for the local “taxe fonciere”. This is dependent on the size of the property but a typical two bedroom property would cost approximately £200 per annum. This can be offset against the income.
Mortgage rates are currently around 3.5% at present. This compares with the 4-6% income after most costs.
Clearly all investments have a downside and potential problems. Leaseback is no exception and these should be understood, in particular that this is generally a long term investment. However leaseback is certainly not restricted to the Alps. Please have a look at http://www.esprit-consultants.co.uk
I would be pleased to answer any specific questions anyone has.
What is a typical return, and is it net of all charges?
The guaranteed income is up to 6% per annum, although typical leases are from between 4% and 6%. This is a fixed income as specified in your contract and is guaranteed whether the property is rented or not.
The income is also index linked to construction costs and is paid after deduction of all day to day expenses, which are met by the management company.
Who is responsible for the day to day running of the property?
The management company is responsible for fully maintaining the property. Clearly it is in their interest to maintain a high standard to ensure maximum occupancy levels.
All utility, maintenance and insurance costs are met by the management company. The purchaser is only responsible for the local “taxe fonciere”. This is dependent on the size of the property but a typical two bedroom property would cost approximately £200 per annum. This can be offset against the income.
Mortgage rates are currently around 3.5% at present. This compares with the 4-6% income after most costs.
Clearly all investments have a downside and potential problems. Leaseback is no exception and these should be understood, in particular that this is generally a long term investment. However leaseback is certainly not restricted to the Alps. Please have a look at http://www.esprit-consultants.co.uk
I would be pleased to answer any specific questions anyone has.
Hi adj38
I was looking at one of these in Biot (06) but I decided not to proceed for the following reasons. Maybe you would like to comment on this.
1. The headline yield quoted was 4.5% but when you take into accoont the compulsory furniture package and notaire fees it was more like 3.5%. That's OK while Euro interest rates are 2% but they won't be for ever.
2. As a non resident of France I would have to pay 33% French tax on any profit. If I retired to the UK I could reclaim this under the dual taxation agreement. However if I retire to Spain I will only be able to deduct it from other income tax arising from Spanish income. If I am a non tax payer I wouldn't be able to reclaim it.
3. I heard that the management company can extend for another nine years if they want to. Not sure how true this is.
Can you combine these with SIPPs or is that too complicated?
I was looking at one of these in Biot (06) but I decided not to proceed for the following reasons. Maybe you would like to comment on this.
1. The headline yield quoted was 4.5% but when you take into accoont the compulsory furniture package and notaire fees it was more like 3.5%. That's OK while Euro interest rates are 2% but they won't be for ever.
2. As a non resident of France I would have to pay 33% French tax on any profit. If I retired to the UK I could reclaim this under the dual taxation agreement. However if I retire to Spain I will only be able to deduct it from other income tax arising from Spanish income. If I am a non tax payer I wouldn't be able to reclaim it.
3. I heard that the management company can extend for another nine years if they want to. Not sure how true this is.
Can you combine these with SIPPs or is that too complicated?
Hi San Fermin
You might be quite right with regard to the yield. There is some variability and it is better to obtain up to date price lists which quote basic price, furniture pack and income. Yield also depends on number of weeks usage you might want. We can get better yields than 3.5% on most properties see www.esprit-consultants.co.uk. However also look at location, value for money, price per sq ft etc.
Wth respect to the renewal, this will depend on what the lease actual says. There should be no problem obtaining a copy for yourself. In contrast some of the properties we deal with are for 9 or 11 years with no requirement to renew.
The important point to make is that all lease contracts are different, and it is difficult to generalise. The good ones are with in English and are easily understood – but always take appropriate legal advice.
In respect of interest rates, it is possible to get long term fixed interest rates if this is a concern. Obviously the rates are a little higher. Also remember income is index linked.
With regard to taxation and SIPPs, this is just to wide a question, and would recommend expert advice.
If you contact through the website with details of what and where you are interested in, I will be pleased to see what I can suggest for you.
I hope this helps
You might be quite right with regard to the yield. There is some variability and it is better to obtain up to date price lists which quote basic price, furniture pack and income. Yield also depends on number of weeks usage you might want. We can get better yields than 3.5% on most properties see www.esprit-consultants.co.uk. However also look at location, value for money, price per sq ft etc.
Wth respect to the renewal, this will depend on what the lease actual says. There should be no problem obtaining a copy for yourself. In contrast some of the properties we deal with are for 9 or 11 years with no requirement to renew.
The important point to make is that all lease contracts are different, and it is difficult to generalise. The good ones are with in English and are easily understood – but always take appropriate legal advice.
In respect of interest rates, it is possible to get long term fixed interest rates if this is a concern. Obviously the rates are a little higher. Also remember income is index linked.
With regard to taxation and SIPPs, this is just to wide a question, and would recommend expert advice.
If you contact through the website with details of what and where you are interested in, I will be pleased to see what I can suggest for you.
I hope this helps
Thanks adj38 for you replies. I've had a look at your website and will maybe contact you. Just a couple more questions which I think others here may be interested in also.
Does the income received go up every year?
I can't figure out why developers/management companies want to do these leasebacks. Isn't it just a way for them to get cheaoer finance from private individuals (than they can from banks) and let them take all the risk? Maybe there's an obvious answer.
Regards
Does the income received go up every year?
I can't figure out why developers/management companies want to do these leasebacks. Isn't it just a way for them to get cheaoer finance from private individuals (than they can from banks) and let them take all the risk? Maybe there's an obvious answer.
Regards
Hi San F
Yes the income is linked to the French Construction Index - which varies annually between 1 and 4%, unless there were to be deflation.
I suspect there is an element of cheap financing. Athough the Euro base rate is pretty low at the moment, you must take a view on future movements. Investors concerned can fix euro mortgage. The return of the VAT is an incentive to the buyer, and only applies to a development that falls under the leaseback scheme. As with any financing it is not something for nothing. The developer therefore uses this to ensure sales at his development. The management co also seeks to make a profit and has to be sure it can achieve the necessary yields. However the scheme has been running since 1976 and common sense would suggest it to be fair to the parties.
Regards
Yes the income is linked to the French Construction Index - which varies annually between 1 and 4%, unless there were to be deflation.
I suspect there is an element of cheap financing. Athough the Euro base rate is pretty low at the moment, you must take a view on future movements. Investors concerned can fix euro mortgage. The return of the VAT is an incentive to the buyer, and only applies to a development that falls under the leaseback scheme. As with any financing it is not something for nothing. The developer therefore uses this to ensure sales at his development. The management co also seeks to make a profit and has to be sure it can achieve the necessary yields. However the scheme has been running since 1976 and common sense would suggest it to be fair to the parties.
Regards
PS Should have said that we can help with pointing you to experts who can deal with SIPP and taxation issues. I can give some general advice, but just to many variables to discuss properly here.
In les Arcs, there was a way to minor legal fees by avoiding a real transfert of property through the sale of the empty space included between the walls and not the walls themselves. This was standard practise for the sale of timeshares.
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