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The leaseback scheme was introduced by the French government in 1986 to encourage investment in tourist destinations in France such as the French Alps, South of France, and some major cities. The principle is to build quality properties in these regions that can then be rented to tourists, keeping the local economies strong. In doing so, the government offers buyers several incentives, to attract private investment.
These benefits make leaseback properties (also referred to as Tourism Residences) an attractive investment for both French and foreign buyers. The term leaseback is often confused with leasehold, a property ownership which we are familiar with in the UK. In France, all properties are sold freehold, and ‘leasehold’ does not exist. As its name suggests, a leaseback property is therefore a property owned freehold, which is leased back to a management company for a finite period of time.
France is the most visited country in the world, with 2019 figures stating that over 90 million tourists travelled to France. The tourism industry in France contributes €114bn to the French GDP * Source: Insee.
These figures have been on a steady incline since the end of the last century, at a time when international travel became easier and more affordable. The numbers are also compounded by the fact that many French residents take holidays in their own country, putting further strain on the need for quality tourist accommodation.
By offering the various tax incentives to investors buying leaseback properties, the government can ensure that accommodation in key tourist destinations is being meets the high demand, effectively contributing to the country and local economy. All the while, the investors are benefitting from a secure investment, which is hassle-free and tax efficient.
As with any property investment, location is key when purchasing a leaseback property. Successful leaseback developments are always located in prime locations within popular destinations such as the French Alps, the South of France and major French cities. At Erna Low Property we hand-pick the leaseback developments we market, to ensure that our clients are always investing in popular locations, where tourism is rife.
It is a common misconception that the sale of a leaseback property is more difficult than a property without a lease attached. We have numerous partners in France whose business model is dedicated to the marketing and selling of leaseback properties, and there will always be a market for leaseback properties in prime locations.
Another misconception of the leaseback scheme is that, when selling your property, you must repay the VAT back to the French government. This is simply not the case – the new owner will simply carry forward the investment scheme to the end of its term.
Again, at Erna Low Property we pride ourselves in working only with the most reputable developers building the properties, then managed by the finest managing companies in France.
Are there other costs to consider?
As mentioned previously, one of the key benefits of owning a leaseback property is that the running costs are largely reduced when compared to a standard purchase. The management company absorbs most of the costs and the owner contributes a management fee, which differs per development. Other costs to consider; Taxe Fonciere (French property tax), which is about €12 – €15 per m2 per year and with a new build leaseback property, can be exempt for up to 2 years.
Is the rental return guaranteed?
Over recent years, we have seen several new developments being sold with a lease which does not offer a guaranteed rental return. Instead, the owner is paid a percentage of the total amount of rent received by the management company for their specific property. In such cases, the lease tends to be more flexible with regard to the personal use and has the potential to be more profitable to the investor, comfortable with not having a guaranteed return. More details below.
Do I have to pay income tax in France?
One of the benefits of the leaseback scheme is the ability to offset several costs (capital depreciation, furniture, legal & accountant, service charge, maintenance, property tax…) against the rental income, contributing to the owner not generating a taxable income on the rent received for the entire term of the lease. France has a dual taxation agreement with the UK and most other countries. Please seek legal advice in these matters.
Can I get a mortgage on leaseback property?
Please contact us if you would like to discuss finance, as it is a niche market, in particular for non-domiciled clients.
What is the process of reserving a leaseback property?
The process is no different to reserving a standard freehold property in France, aside from a few additional documents to sign as part of the reservation contract (e.g. commercial lease, tax and furniture pack). Please read our guide to reserving a French property.
Recently, we have seen property developers and management companies promoting leaseback properties with a slightly different setup to the ‘traditional’ leaseback property. Owners benefit from many of the same incentives as detailed above, but the owner’s usage and rental works on a more flexible ‘buy-to-let’ basis. In this setup, the owner can use the property up to 6 months per year and is paid a larger proportion of the rent received by the lettings’ agent / management company. There is no guaranteed return as with some of the more ‘traditional’ leaseback property, but there is the potential for higher rental returns with a more flexible use of the property.
For further information on the leaseback scheme and the leaseback properties we have for sale, please contact our bilingual team of experts who will be happy to assist you.
