Definition:
Arrangement in which one party sells a property to a buyer and the buyer immediately leases the property back to the seller. This arrangement allows the initial buyer to make full use of the asset while not having capital tied up in the asset. Leasebacks sometimes provide tax benefits
French Leaseback Schemes (For more information click to see FAQs)
When we refer to leaseback or leaseback schemes in Europe, we generally refer to the French Leaseback scheme.
The French government created the leaseback scheme to encourage and promote investment and tourism in France. The French Ministry of Tourism oversee this national scheme. Developers are financially bonded and all contracts are Government regulated.
As with the definition above, under the leaseback scheme, the purchased property is leased back to the seller/management company who specialise in the tourist management, maintenance and rental of these properties for a period of 9 - 11 years. Owners receive a guaranteed annual return (typically 2-6%) which increases with inflation, irrespective of occupancy of the property and NET of all communal charges, maintenance and running costs.
VAT Refund
The buyer also receives a refund of the VAT, which for off-plan properties, is 19.6%. This refund is effectively used as the deposit For refurbished properties, the VAT element may be much reduced or may not apply.
Lease Period
The period of the lease is generally 9-11 years. As the mortgage/loan period is normally 25 years, the management company will renew the lease for a second period but only if the rentals are successful.
Personal Use
Leaseback options cover 100% investment, which is no weekly use by the investor or a series of options for weekly use during the winter and summer seasons. The more weeks used and the busier the season, the less the guaranteed rental return. The year is generally divided into high season, mid season, and low season. The owner has first choice of the weeks to spend at the property, which must be specified at the start of each year.
Tax Incentives
Leaseback schemes are an extremely popular way to purchase a property in France because they provide the buyer (if a resident in France) with attractive tax incentives and also 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 and index linked for the period of the lease.
The introduction of new buyer incentives back in early 2009 for the purchase of French property d for renting purposes, turned a seemingly dead property market into a thriving, buoyant market place, virtually overnight The loi Scellier, as it is called (named after the French politician who proposed the idea) offers a reduction in income tax of up to 37% of the acquisition cost of a French rental property (for French residents).
Due to these financial advantages, leaseback schemes have “mushroomed†and leaseback developments in sought after locations sell very quickly. However, it is important, that buyers understand that a leaseback property cannot and will not meet the same requirements as a property purchased as a second home. The success of a leaseback development relies on two specifics: its location and the long term performance of the rental management company.
Benefits:
- 19.6% VAT Rebate, which acts as your deposit
- Low Mortgage Interest Rates - Fixed for 25 years
- New Tax Breaks Introduced in 2009
- Personal Use - have holidays in your investment
- Located in popular tourist areas
- Low Risk Investment, with a Guaranteed Income
- Selected leasebacks included in SIPPs
Leaseback Schemes in Other Countries
Switzerland, the other country we specialise in, has no government backed leaseback scheme. However, developers do promote ‘leaseback’ properties but generally these have no guaranteed rental return - or more importantly – no guaranteed index linked rental return, as offered by the French leaseback system. To combat the ‘cold beds’ problem in the Valais area, foreigner authorizations are being made available on the basis that the buyer will rent out or offer the property for rent for the majority of the year. These schemes should be considered carefully and legal assistance sought. Again, if you are looking for a second home in Switzerland, this investment option may not be for you. .
