Gen-eva Posted February 7, 2012 Share Posted February 7, 2012 From time to time I see ads for french property for sale via leaseback. Has anyone actually purchased any of these properties, and what have your experiences been? Are they marketed mostly to the english, or the french too? One of our relatives is a project manager on a construction site, and he'd never heard of this concept. This is strange, because they're plastered on many french real estate sites. Anyway, the yield is more or less 4-5%, loan payable off over around 20 years, during which time the property is leased to a tourism operator. Do owners have positive or negative experiences? From the income that you receive, do you have to deduct social charges & the like, or just income tax? If you have to take out social charges, then it would hardly be worthwhile. In fact, it might be negative. Also, is the loan interest only tax deductible (like a normal investment), or can you deduct the capital component too? Any what of the experiences with the operator? As I understand it, Pierre & Vacances is the largest operator in this sector, but there are others. Love to hear your stories Link to comment Share on other sites More sharing options...
Sprogster Posted February 7, 2012 Share Posted February 7, 2012 My understanding is that recent tax changes in France restricting tax relief have made tourism property leaseback investments less attractive. Also I have read that these types of tourism leaseback developments in France have led to an excess of supply over demand which can make it very difficult to extract your investment and often the returns do not live up to expectation due to high management charges. Caveat Emptor I believe! Link to comment Share on other sites More sharing options...
Daft Doctor Posted February 7, 2012 Share Posted February 7, 2012 My wife and I have had one for 2 years now (4 years including the construction stage) in a ski town in Haute Savoie and have 2 weeks high season personal use built in to our lease, which is with Soderev, one of the biggest operators in France (Groupe Lagrange). Firstly, bear in mind that the quoted yield might be only calculated on the actual apartment cost (in our case for instance we paid 15k euros for the underground car parking and 13.7k euros for furnishings which don't come into the yield equation). There are also the notaires fees to consider on purchase, likely to be approx 4% of the sale price (if the property is under 5 years old - more like 7% if older). All in all, our yield was only worked out on approx 85% of what we actually shelled out. There are ongoing annual costs also to consider, including Tax Fonciere (Tax d'Habitation is paid by the holiday company), a proportion of the Syndic charges for the development and accountancy fees (a french accountant is vital). All in all, despite having a reduced yield for taking some personal use, our mortgage interest payments and all other ongoing charges are more than covered by the commercial rent. Unfortunately however we bought pre credit crunch and pre-recession (x2), so the capital value has plummeted, probably by as much as 25-30% overall. This means that although from an income and expenditure side it has done ok, we would have been much better off if we hadn't bothered. That being said, by going back regularly to the same place, we discovered a part of France that will soon be our permanent home, so some good has indeed come from it. The property and leaseback market is probably bottoming out now, and as long as the leasing company is solid financially and is reputable (some aren't quite so!) and you can realise a gross return of say 5% on total price paid (including all notaires costs, etc) leaseback could still be worth a punt. You should however think of it more as a long term investment linked to property rather than buying an apartment per se, although having some personal use helps to make it feel more tangible. We are putting our leaseback up for sale in the summer and I don't think it will be easy to find a buyer without offering a very attractive price, so if you remain keen I would advise you to look for a resale in an area which has year round activity and that you really like, then negotiate hard to get what you want. You will almost certainly pay more for a new property or something off-plan (as is the case with property just about anywhere) and end up with a smaller yield than that advertised. As far as taxation in France is concerned, as well as mortgage interest and the other abovementioned ongoing costs, the capital value of the property is also amortised and put down against tax (in contradistinction to the UK where it is not). As a result we had a year where we made a sizeable tax loss in France, but made a profit as far as HMRC was concerned. Hope that all helps a bit, fire away or pm me if you need anything else. Link to comment Share on other sites More sharing options...
Sprogster Posted February 7, 2012 Share Posted February 7, 2012 Daft Doctor, I am fairly certain that some of the French tax allowances and VAT benefits appertaining to lease back properties have been scaled back this year. Perhaps Pomhorn can advise?Certainly the changes in French capital gains tax that come into effect this month make French property investments less attractive, now that you have to own a property other than your primary residence thirty years to avoid French taxes on any gain and I am told this already has had a chilling effect on the market. Link to comment Share on other sites More sharing options...
Daft Doctor Posted February 7, 2012 Share Posted February 7, 2012 I'm sure you're right to a degree Sprogster, fortunately (CGT wise) there is no prospect of us being liable to any when we sell. As far as TVA is concerned, with leasebacks the French government refunds the TVA payable on the initial build, either directly to the buyer to keep, or via the buyer to the developer (as was in our case - in lieu of the final staged payments). If the property is sold at any time within 20 years of completion, as long as the commercial lease is still in place after the sale and simply assigned to the new buyer, then no TVA is repayable. If at anytime in the first 20 years the lease is not continued or the property is sold without the lease attaching then a straight proportion of the TVA is repayable, e.g. TVA = 40k, lease not renewed by owner after initial 9 year period, then 11/20 x 40k = 22k to repay (over 3 years since 2010). Link to comment Share on other sites More sharing options...
Sprogster Posted February 8, 2012 Share Posted February 8, 2012 Came across this article regarding leaseback properties stating the French government have had to announce a rescue plan, as many of them are at risk of going into liquidation. It would appear that many investors had their judgement clouded by the perceived tax advantages and overlooked the underlying investment fundamentals, in that supply was exceeding demand.http://www.french-property.com/news/french_business/holiday_ski_accommodation_france/ Link to comment Share on other sites More sharing options...
Daft Doctor Posted February 8, 2012 Share Posted February 8, 2012 The article Sprogster has found is 2 years old now, but the points made are still of course relevant. What amazes me is that there is still a plethora of new developments springing up even though saturation point may have already been met. What I said above however is still relevant, especially if you think of it as a long-term investment, choose very carefully and bargain hard. Leaseback can still be a reasonably cost-effective way of owning a holiday property in France without the hassle of organising rentals, changeovers and mainteneance, but it has to be entered into with eyes wide open. Right place, right price, an operator with good track record and a realistic return are what any interested party should look for. Link to comment Share on other sites More sharing options...
Sprogster Posted February 8, 2012 Share Posted February 8, 2012 I have just read a French property market outlook review for this year and it makes sobering reading, with the consensus amongst the experts that French house prices are heading down, it is just a question of how much by , with some experts predicting up to a 35% correction!It also gives more details as to the abolition of tax breaks on new builds.Anyway I have set out the link below, so I guess the message is take your time and bargain hard.http://www.french-property.com/news/french_property_market/review_2011_outlook_2012/ Link to comment Share on other sites More sharing options...
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