Ever wondered what French leaseback schemes were all about? Emily Akerman explains their popularity

France and Spain are still favourites among investors. With strong economies and large tourist industries, buyers can expect less surprises in these developed markets than in the emerging ones. If you are looking at investing in France, undoubtedly you will come across ‘leaseback’ properties, which are currently very popular as they give long-term guaranteed rental incomes.

The leaseback scheme was introduced by the French government in the 1970s to satisfy a demand for holiday letting properties. Over the last few years it has been introduced in the UK and sales have grown, with companies created purely to sell leaseback property in France.

The scheme applies only to new-build or off-plan properties and allows buyers a 19.6% VAT rebate on the property price – giving them almost 20% more buying power. Notary fees for new properties in France are low at between 2.5–5%, compared with resale notary fees of 7–10%.

Leaseback properties are freehold – leasehold does not exist in France, However, to benefit from the tax break, buyers must sign an agreement stating that they will lease the property back to a management company initially designated by the developer for a set period of 9–11 years. In effect, the management company is the tenant.

Rental income is guaranteed for the entire lease period, with returns ranging from 3–6% of the property price, including or excluding VAT depending on the developer, usually payable on a quarterly basis. The management company will cover for any void periods, and management costs are included, meaning that the rental return quoted in the lease should be the amount received by owners.

As part of the agreement, the management company will also allow a set period of personal use, typically two to four weeks per year and usually within set time limits, e.g. June–August.

Ideal investment

Leaseback is an ideal investment for those looking to make their money work for them for a long-term period at a rate which fares comparatively well with other forms of investment. It is hassle-free – the management company is the tenant and charged with the maintenance and letting of the property.

Many holidaymakers have also been attracted by the leaseback offer, as it gives the opportunity to buy a property within a managed resort. The management company will not necessarily be able to ensure that owners will stay in the specific flat/villa they bought during their allotted weeks of personal use; however, their investment does entitle them to free holiday accommodation every year for the duration of the lease.

One common concern with leaseback properties is that exit strategies are not straightforward, due to the fact that the management company legally has the right to renew for a following 9–11 years after the initial lease. It was previously believed that owners would have the right to go and live in the property if they so wished after the first lease; however, this is not necessarily true and in most cases, should owners wish to exit, they must sell to a buyer who is interested in taking on the lease.

Many people looking to buy in France question whether they couldn’t make the same amount or more money through letting out their property themselves during high seasons and using it as and when they like at other times of the year.

This is, of course, possible, although not many people will have the time required to do so successfully. Anyone wanting to let overseas properties themselves will need to choose their location carefully to ensure demand and invariably will need someone working for them on the ground to manage changeovers.

Going through a local letting agent is also an option. However, if they are not English-speaking and buyers do not have a good grounding in the local language, this can be difficult anywhere on mainland Europe. Our own agent in Spain has a sister rental company staffed by English agents. This is ideal for prospective buyers and gives them the peace of mind to be able to leave their property in good hands and to have an English-speaking contact ready to assist with all aspects of managing and letting the property.

Developers in France are now offering more traditional buy-to-let deals to the UK market with renewable three-year leases guaranteeing similar rental returns to leaseback, where a management company is appointed and the tenant is the person living in the property. Management fees are not included and are around 10% of the rental income.

These properties are invariably residential developments rather than holiday complexes and as such are suitable for owners to move into once the lease has expired. There is, of course, no tax advantage to this kind of purchase as with leaseback, and while there is a tenant in the property, owners will not be able to use it.

There is therefore an enormous amount of choice available for those looking for income-generating residential property abroad. If buyers are looking for rental income in the short term with a view to selling on or moving in the medium term, then they will opt for shorter, more flexible leases or self-management. If rental income and ease of ownership are important and the investment is part of a strategic portfolio, the leaseback offer is very attractive.

Either way, it is important for people looking to enter the overseas rental market to shop around in order to get the best possible value for money in terms of the quality of the property, and also to make sure that the cost of letting and maintaining the property does not outweigh the benefits.

Akermans are currently marketing a new development in the heart of the Deux Sevres region of France. It is set next to an established golf course, and membership reductions are available to owners. Properties are available with or without rental management programme. Prices start at 144,000 euros for a two-bedroom house.