The Lure of Leaseback

By on April 7, 2013

Hankering after an affordable ski property that pays its way?

The Good Property Guide talks to Graham Lavender of Pommier Property Investments about the increasingly popular home ownership scheme known as leaseback. Despite escalating prices for everything from lift passes to vin chaud lunches, France continues to top the winter charts with more Brits choosing to head there for their annual fix of the white stuff than anywhere else. The reason isn’t hard to fathom: the Alps have some of the best ski terrain in the world. All this leisure traffic however, translates to a high demand for accommodation. Cue an inspired ‘top-up’ solution from the government – leaseback ownership; new versions of which are being rolled out by President Sarkozy in a bid to boost foreign investment.

It was back in the early 80s that the French government started to experience a surge in demand for privately owned holiday accommodation and introduced a law incentivising investors and developers to create more capacity. Today, the Residence de Tourisme orLeaseback scheme has a credible investor following, with increasing numbers of British buyers opting to purchase a pied-a-terre this way. “The leaseback concept is simple,” explains Graham. “You purchase a freehold property in a development of your choice and lease it back to the resort rental management company for a minimum of 9 to 11 years, depending on the contract. You then have the option to sell up or to renew the lease to up to a maximum 20 year term. If you finance it right, you can cover a sizeable chunk, if not all, of your mortgage costs with the guaranteed rental income, (typically 3% to 5%), which is underwritten by the government. At the end of the lease period you’ve got a prime property in a high-value tourist location that’s yours to sell on the open market or, carry on enjoying.”

While individual schemes vary in how they operate, most offer up to 6 weeks personal usage per annum spread across the seasons. Rents are revised (by law) at least once every 3 years and are linked to the inflation rate. “Properties also come fully furnished,” adds Graham. “Maintenance and upkeep costs are already built into the rental rate – leaving you with just your initial purchase fees of 4-5% and annual taxe fonciere (land tax) of around £250 to pay.”

Leaseback property has the added sweetener of a 19.6% VAT rebate, either discounted from the purchase price or claimed back on completion of the development. One downside however, is that it’s a long-time to have your money tied up. If you sell before your 20-year tenure is up, you have to pay back a percentage of the VAT. That said adds Lavender: “You’ve got a fully-maintained bolt hole and no hidden extras to shell out on in the meantime.”

As with all investment schemes, caveats come into play: “The product is only as strong as the management company behind it,” stresses Lavender. “Research your developer and make sure they have a solid track record and clearly laid out renewal and exit terms. It’s important to be realistic about capital yields too. Someone buying your apartment won’t have the leverage advantage they would when buying into a new project, so your re-sale price will have to reflect this. Every scheme has its pros and cons – the key is finding one that best suits your needs.”

Photo credit: Aaron Bentley (Bentleya) / / CC BY-NC