French Leaseback Schemes - How do they work?
The French leaseback scheme is a government
initiative to encourage and promote both investment
and tourism in France. It is a national scheme
overseen by the French ministry of tourism and offers
the assurance of government regulated contracts and
financially bonded developers.
Under the leaseback scheme, the buyer agrees to
lease the property back to a holiday management
company for year round rental. This is usually for a
period of 20 years, and in return the buyer receives
a refund of the vat included in the purchase
price.
Leaseback schemes are a popular way to purchase a
property in France because they allow the purchaser
an amount of personal occupancy whilst benefiting
from an immediate saving on the purchase price. In
most cases the annual rental income is
guaranteed.
Due to the financial advantages, leaseback schemes
have “mushroomed” in France. We feel it
is important, however, that buyers understand the
background to a leaseback development. Buyers into
the scheme should realise that a leaseback property
cannot and will not meet the same requirements as a
property purchased for one’s personal and
family needs. When buying a leaseback property you
are buying into a holiday rental environment with
regular changeovers, perhaps noisy neighbours, and a
different day to day living.
In addition, the success of a leaseback development
rests on two elements: its location and the long term
performance of the rental management company.
A development in a very rural area, which only comes
to life in the summer months, may not be the best
long term investment as far as resale potential is
concerned.
How well the development is rented during the first
lease will determine whether the management company
renews the lease, and whether it will carry on
guaranteeing an annual income, and at what level.
Again it is in the interest of the management company
to perform well, but buyers must remember that there
is no obligation on the part
of the management company to renew the lease. Hence
the necessity to choose a location with good
amenities and a good tourism track record. From a
leaseback owner’s point of view, the standard
of maintenance carried out by the rental management
company on both the property and its shared
facilities is also a key factor. It will be in the
interest of the management company to see to this for
the duration of the first lease. However, should the
management company not renew the lease, owners need
to be aware of the options available as far as
letting and upkeep are concerned.
The leaseback scheme serves a very specific purpose
which is to promote and develop tourism. A leaseback
property may not be the most suitable buy for someone
looking for a traditional family home with the
flexibility and identity such ownership would bring.
On the other hand, if you are looking for an
investment opportunity without having to manage or
maintain it yourself, then a leaseback property could
be an ideal way for you to invest in French bricks
and mortar. It is worth looking at all the leaseback
opportunities available before deciding whether a
leaseback property is right for you.
Patricia Fevrier, founder and Managing Director of
the new build property specialists A Place in France,
FrenchEntrée New Build Zone Sponsors.
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