This quarter, we have decided to dedicate the whole of the newsletter to leaseback investments schemes. We are so enthused about these plans we are currently planning our own purchases...

Leasebacks, buy-to-let, investment products - call them what you like, the French buy them in the same way that the British buy pension plans. In fact that is an excellent way to think of them - in simple terms they are FREEHOLD "property pension plans".

Generous tax-breaks are available to investors who buy into freehold residential tourist properties, with very attractive buy-to let properties. 19.6 % VAT is refunded from the French Government within 3 - 6 months of purchase and in return you receive a guaranteed rental yield of up to 6.5% NET.

France takes its 74 million tourists a year very seriously indeed. France is No 1 in terms of world tourist destinations, so the French government came up with some investment incentives. The aim was to meet the needs of an ever-increasing accommodation demand triggered by the growing flow of tourism.

A leaseback plan is a scheme where you buy a property and then grant a management company the right to use it for short-term tourist rentals, this is usually over a minimum contracted period of 9 years. You receive in return major tax breaks from the French administration as well as a guaranteed rental income for the duration of the contract. Anyone can buy a leaseback property - there are no restrictions for non-residents.

In return for a leaseback contract to a management company the buyer gets a net guaranteed return of up to 6.5 % net depending on the location. These returns are net during the term of the lease, which means net of the running costs, as well as index-linked increases. French banks may lend 80 % of the property value, even 95% in some circumstances. By using leveraging, you can invest a relatively small amount of money and yet reap the gains on a large amount. These are investment products for people who want to build up a property portfolio, or property pension portfolio as I have referred to it above. It certainly beats sweating away renovating or running gîtes in my book! Investment in property could also outperform the stockmarket, which many investors have grown disenchanted with. The big advantages are that the investor can accurately calculate his financial commitments over a minimum of 9 years, which as you will appreciate is not possible with a gîte or equity based investment.

Leasebacks do not suit everyone, because use of the apartments by the owner is strictly limited. Some schemes offer 2-4 weeks free occupancy per year, while others allow you to use it whenever you like but you have to pay the full market rent, less 20%. If you decide to sell it before the 9 year leaseback contract has ended, you will have to find a buyer willing to take on the lease.

On the other hand, these properties are all freehold and in exchange for a 9 years (or more) leaseback contract, most of the mortgage will have been repaid, you have saved 19.6% VAT, the apartment is handed back in good decorative and furnishing order, and you can then move in and enjoy it. The VAT saving on a 150,000 euro property (approx £105,000), would save you 30,000 euros (approx £20,000).

Spurred on by low interest rates and escalating property prices, astute investors are using equity release to buy abroad and France is at the top of the bill.
You pay a percentage of the purchase price on signing the contract, with several instalments paid at varying stages of construction. The obvious advantages are that the property is virtually maintenance-free, comes furnished and, if you pick the right location, can be rented for a longer period.

So wheres the catch? The return from rental income isnt that spectacular - currently its around 6% net - but, if you allow for financial gearing, the actual return on investment, could be around 20-25 % cent, taking into account future increases in capital value over the next ten or so years.

If this is something that would be of interest to you then please contact us by e-mail to discuss your requirements or telephone on 00 33 (0)5 49 27 01 22 or 0871 717 4176 (UK no).