Shane's Property advice

Leaseback is a big part of buying in France, and while it doesn’t offer a fast buck it does offer a certain element of security

Tips & debate:
THIS MONTH: LEASING

A recent survey by web-based property company www.holidaylettings.co.uk claims that of the estimated 850,000 Britons who own property abroad, only 20% rent their properties out, and the majority spend just four weeks a year using them. This means a resulting loss by the owners of over £4 billion in potential rental income. According to the company, the best locations to invest in are Spain, France, Italy and Portugal. Ross Elder, the website’s managing director, says the average annual rental income for a mixeduse property ranges from €8,845–€22,745.

In France, a “leaseback” system was introduced during the late 1960s, when a dramatic rise in tourist numbers was coupled with a lack of accommodation in key areas. As an incentive to investors, the French government allowed the VAT on the purchase price (19.6% for new-build properties) to be recovered, which in some cases can be taken off the overall price, or used for leverage finance or the deposit.

The new-build property, usually bought offplan, is then leased back to the management company for a minimum of nine years. They handle the administration, maintenance and rental of the property and pay the owner a regular income, regardless of occupancy levels.

In most cases, the owner is allowed to use the property for a set number of weeks a year, usually agreed in advance. The only downside is that, as with most rental properties, the set weeks cannot be during the peak seasons.

It’s a constant dilemma for buyers who wish to rent out their holiday homes, although one management company, Pierre & Vacances, has lessened the pain by offering leaseback owners a discount in their other resorts in Spain, Italy and the French Caribbean.

Tim Harvey, managing director of French mortgage specialist Offshore Online, says: “With fixed-rate funding available in France from 4.90%, if a leaseback is yielding an indexed 5.20%, the buyer is looking at a potential profit from the outset.”

That would be worth the annoyance of not being able to stay during peak months. However, the higher yield is not always the case and for the first few months or even years, the owner of a leaseback property will have to supplement the difference between the rental income and mortgage repayments, unless of course they have paid cash in full.

“Central to the success of any leaseback is the reputation and strength of the manager, who has the long-term responsibility for filling the dwellings with tenants and maintaining the fabric of the building,” says Guy Stephenson of www.frenchleasebacks.co.uk. While leasebacks offer an element of security, they are only as good as the location and the terms you agree. If yours doesn’t attract tourists and interest, then ultimately it will fail, regardless – so be sure to research any scheme fully before signing.

Some schemes will state how prices have risen in the area and how much capital appreciation can be made. But remember many owners in your development may be looking to cash in after the minimum nine years, too. Then the laws of supply and demand kick in – so leasebacks are not for those looking for a quick buck.
WWW.FRENCHLEASEBACKS.CO.UK, WWW.PIERREETVACANCESIMMOBILIER.COM.