French Leaseback | Real Estate Guide
What is a French leaseback? Where to invest? French Riviera, Brittany or somewhere else in the country?
All the answers to your questions are here and more to be discovered...
The tourist leaseback scheme was introduced by the French government in 1976 to enhance the tourist industry in different parts of France.
I work with a number of selected developers and property management companies.
I have over ... well, quite a large listing of French Leasebacks properties available in France its Riviera.
Please fill in the French Property Form in order to make your specific request for your French Leaseback. Even better: before doing so, read the page below...
I offer a wide choice of selected properties all over France. Pictures in this page are just samples of properties that I have sold or still available on the market.  |
I do not display properties in this page as I need to know first where you wish to invest, what are your preferences, needs and other important points that will help me to find the right French leaseback investment for you.
I do not just want to display here a bunch of properties for sell. I work the way around: I need to know YOU, to be able to offer what will suit you, simple!
The only purpose of this page is to explain in details the process of a French leaseback investment with its + and -. After, the choice is yours!
Being in the real estate business for many years, French leaseback properties is today one of my speciality. Foreign investors love this kind of investment as it has a lot of advantages.
My work differs on the following points:
I represent my clients and I work with a number of selected French Leaseback Developers all over France and:
- My work does not cost you anything extra. In the event of a purchase the developer pays my commission.
- I provide reliable service before, during and after the sale.
- I guide my clients throughout the acquisition process and help them with all the practical matters, even after the final purchase.
- I am always reachable and available.
You acquire a newly built freehold property, fully furbished and equipped ready to be let. You sign a rental agreement with a property management company for a minimum period of 9 years. In return you receive a guaranteed rental income between 3% and 6 % (approximate range) of your initial investment for 9 years (or longer). The French government allows you to benefit from a TVA (VAT) concession, which means a saving of 19.6 %* on the initial French Leaseback property price. In most cases you receive the TVA back from the government within 4 to 6 months of the purchase of the property. Some developers may advance the TVA refund and receive the funds direct from the government.
The French Leaseback contract with the management company is renewable after the 9 years period (periods can vary from development to development).
During that period, you can occupy the property for a few weeks per year (frequently 4) for a set time each year. The personal use varies according to each development.  | The management company always looks after all aspects of the rental, finding tenants, maintaining the properties in good condition, replacing the furniture when damaged and paying your rental income.
A French Leaseback is a stress-free purchase for investors living abroad. Your rental incomes are received quarterly or yearly.
Above was just a resume; you will find below much more details for a French Leaseback...
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With the downturn in pensions and other more traditional methods of investing, more and more people are turning to bricks and mortar and French leaseback schemes have helped take the hassle out of owning buy to let property for many.
Uncertainty in some countries property market as UK is leading to more investors turning to foreign markets for their property purchases.
Whilst there is currently a trend in eastern European ‘developing markets’, these markets have little history and present a risk to many investors.
France is an attractive alternative and being located just across the channel makes it a practical choice, for other when talking about investment distant is not a problem anymore these days, isn't it?
Prices are still rising and interest rates are low making it ideal for those wishing to finance their purchase through a mortgage.
The French property market has experienced an increase in prices of between 50 – 60% over the last five years (source: www.laviefinanciere.com (French version only).
According to the INSEE 320 000 lodgings must be constructed each year from 2000 to at least 2020 to respond to sociological demands in terms of housing.
It is however, important to purchase the right kind of property in the right place to ensure that your investment will stand the test of time.
Just because prices are rising does not mean potential investors are guaranteed that their property will rise in price.
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French Leaseback property has been around for three decades in the country and was introduced by the French Government to increase the quantity of quality holiday accommodation available in areas capable of attracting more tourists.
The properties are usually located in a ‘Residence de Tourisme’ (Tourist Residence) or ‘Residence avec Services’ (Residence with Services) which cater for short term lets and provide a variety of services.
Usually to include reception, breakfast (by prior arrangement), laundry and linen services, swimming pool, Jacuzzi, sauna, steam room…
Back to Contents. The French Leaseback scheme enables you to purchase freehold a property that you then earn a guaranteed rental income from.
When French Leaseback schemes are sold, there is a pre-selected property management company to whom you "French Leaseback" your property for a period which usually ranges between 9 and 12 years (but can be longer). Remember a French Leaseback spans a 20-year period.  |
During the period you leaseback your property to the property management company, you have the peace of mind of owning property and benefiting from a guaranteed income, yet none of the hassle related to letting out and maintaining the property!
This is one of the reasons why the French Leaseback scheme is so popular and that there is not enough supply to meet demand. One French Ski development sold out within a week!
Depending on the development you can usually use your property for a certain number of weeks per year for holidays although this differs from development to development.
Some developments will offer owners discounted use (usually ranging between 10 – 25%) instead of free weeks whereas others (usually those located in cities offering a higher yield) may not offer any use either free of charge or at a discount.
| French Leaseback = Guaranteed Rental Income | The guaranteed rental income tends to range between 2.5% and 6% (or more, in some cases) per annum depending on the property, whether you will be taking your holidays in it and where it is located.
Different property management firms offer different rental incomes, but in general the less you use your property the higher your yield will be.
What's more, the French government agrees to offset the payable VAT (TVA) on the purchase price against that charged to the short let customers of the rental management company.
This means that you will receive back a sum equivalent to the VAT on the property at the rate of 19.6 % on new build property (renovated or refurbished properties do not normally qualify for a 19.6% VAT rebate but some still do have a VAT rebate element).
This normally takes some months to come through, but some developers will advance the VAT for the government and reclaim it back directly.  | Leaseback is extremely popular with French investors who account for the majority of all purchases. French residents benefit from a range of tax advantages beyond the VAT rebate hence the reason why many of them invest in these schemes.
One final point that has been raised in the past is that LEASEBACK IS NOT TIMESHARE.
Whilst owners are leasing back their property and may only have use of it at specified times of the year, the owner is the Freeholder of the property at all times.
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| Types Of Properties For Your French Leaseback |
You can buy apartments, duplexes, ski chalets and villas - there are even opportunities to buy into rooms in hotels across all France.
The spread of property ranges from Paris, Bordeaux and Cannes across all regions from Brittany to the French Riviera.
Properties will more commonly be apartments or townhouses and will range from studio apartments to two bedrooms. Larger properties tend to be rare and when they are available sell very quickly.
The developments are usually sold ‘off-plan’ which is very frequent in the French property market. Potential purchasers will be able to consult detailed plans and summary building specifications prior to purchase.
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When purchasing a French Leaseback property and deciding on the size of the property to purchase it is important to take into consideration where the property is located.
Studios rent very well in large cities such as Paris, Lyon and Marseille, but there is not as much demand for these size properties in rural areas, say for example in the heart of Burgundy.
Some investors prefer to purchase several small studio apartments in central locations with good transport links as to diversify their portfolio whilst others will prefer a three-bedroom apartment in an upcoming ski resort.
Depending on the French fiscal status of the development (ZRR or LMNP) the properties will either be furnished by the property management company (who in this case carry the price of the furniture), or, there will be a set furniture package that is purchased by the owner.
In the event that the cost of the furniture is to be paid for by the owner this is usually included in the purchase price but it is advisable to seek confirmation.
Purchasers will not have a choice of the finish of the properties (i.e. Paint colour, colour of tiles etc) as the properties are generally equipped and decorated to the same finish throughout the residence.  |
The French Leaseback properties also come equipped with fitted kitchens which depending on the development will include items such as hobs, extractor fans, sinks, cupboards, microwave, oven, dishwasher…
One aspect of French apartment blocks that differs to apartments, as example in the UK is that they are not leasehold.
In fact, in France you have what is known as a copropriété (co-ownership) and all the co-owners own a certain percentage of the communal areas, for example Mr Bloggs in apartment 1 may own 35/10000 of the communal areas.
As you can see a French Leaseback offers a lot of options and is quite flexible.
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| Reservation Process For Your French Leaseback | Once you have chosen a property you wish to purchase you will have to go through the reservation process.
Because the French investors are currently investing heavily, there is a lot of pressure on foreign investors to go through the process at a similar speed!
Generally, if you wish to reserve you will often be advised to make a first and second choice as availability does change very quickly so your choices may not always be available.  |
Generally a 5% deposit is necessary to reserve a property. This does vary from development to development and French law restricts how much can be paid in terms of reservation deposit according to when the development is to be delivered.
The deposit is to be transferred to the French Notaries escrow account to secure the reservation whilst contracts are being arranged.
Proof of transfer must be faxed to within three working days to secure the property. You should start looking for a suitable mortgage at this stage.
For information, French purchasers are normally required to pay the deposit and return the contracts within this delay. More lenience has been given to foreign investors so that they can seek legal advice regarding the contracts.
Nevertheless, 3 weeks is the average delay practised by the developers for foreign investors to return their contracts.
Sometimes they may insist on this delay being shorter particularly if the development in completely sold out and it is the last property available.
Contracts for the majority of the developments are in French. Occasionally contracts are translated although this tends to be rare as the developments sell so quickly on the French market.
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Once the reservation has been made, you will be issued with the completed contracts that must be signed and sent back to me as soon as possible as reservations are not complete without the signed contracts.
It is highly recommended to instruct a qualified solicitor to advise on the contracts and also on such matters as French Succession Law, French Inheritance Tax and purchase structure.
Once the signed contracts have been received they are forwarded to the other parties (Developer, Property Management Company…) who will also sign the contracts. You will then receive the signed contracts by registered mail.
You may or may not receive the countersigned contracts back before being notified of your seven day cooling off period (French version only).
In most instances, you are notified of this at the same time as receiving the countersigned contracts back. In some rare cases, you may just receive a registered letter advising you of this.
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The first presentation of this letter denotes the first day of your seven day cooling off period, meaning that if you chose not to proceed with your purchase your deposit would be reimbursed in full (this can take up to three months to come through, although it does normally come through quicker).
Once the countersigned contracts have been received you should complete your mortgage application straightaway.
You must receive your mortgage offer before you can complete on the property.
If you are unable to obtain finance your deposit is fully refundable providing that the conditions specified in the contract have been fulfilled.
Once you have obtained your mortgage offer a copy is submitted to the notary who is then able to prepare the final documents which will allow you to close on your purchase.
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The notary will address to you a copy of the title deeds (projet d’acte) as well as other necessary paperwork.
Completion on the property is possible at a public notary in the UK, Ireland and other countries; in which case you will be provided with a proxy (procuration).
The proxy, once notarised and sent back to the French notary, gives power of attorney to the French Notary to sign the final ‘Acte Authentique’ in your absence.
ONCE THIS IS DONE YOU ARE THEN THE OWNER OF THE PROPERTY: YOUR FRENCH LEASEBACK!
I strongly advise that you take independent legal advice before committing yourself to purchasing a French leaseback property.
I can recommend you to bilingual solicitors who will give you this advice and also assist with French Succession Law, and French Inheritance Tax related matters.
Further details and a scheme giving a step-by-step guide to the purchase process can be found at the end of this page.
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| Mortgages And Payment For Your French Leaseback |  | Mortgages are readily available if you need money to buy into the French Leaseback scheme. Depending on your financial circumstance there are 100% mortgages available.
It is good to appreciate that the financial institutions see this as a favourable investment.
Most of the French Leaseback offer high quality services and are ranked from one to four stars - the higher rank the better the services offered in the resort.
The French Leaseback properties offer accommodation but also ‘a la carte’ services, with sports facilities, reception desk, pools, breakfast, linen, day nursery, cleaning, etc.
The French Leaseback or ‘Residence de Tourisme’ are not clubs, they are composed of a homogenate development of apartments or studios laid out in groups of units and offer services and flexibility for the clients.  |
Many investors find it financially attractive to purchase their property using a French mortgage.
However, the downside to French mortgages is that they are slow and difficult to obtain and it is highly recommended that you use a French broker who has good contacts with the lenders and can sometimes enable you to obtain a better deal.
Some people can experience delays of over four months when they go direct to the lender, where a good mortgage broker can get a decision and offer in a few weeks!
Rates currently available include:  Variable rates from 2.95% (up to 20 year term) or 3.15% for 21 to 25 year terms.
Capped rates, with payment rate of 3.65% variable and capped at 5.65%.
Part repayment / part interest only at 3.55% variable, with cap of 5.55%.
French lenders take into account different criteria when calculating if they will lend and advice should be sought regarding your borrowing power. Lenders will normally offer between 70 - 80% LTV for leaseback properties, however this depends on your own financial situation and they may ask you for a larger deposit. When purchasing with a French mortgage it is necessary to open a French bank account to deposit your rental income and for your mortgage repayments direct debit. I can help arrange all of the above - please contact me for details. Because new build French property is paid for by a schedule of payments during the build process, it is assumed that the lender will unblock all of the funds straightaway.
This example shows how the mortgage would be drawn on a typical development payment schedule (assumed 70% Loan to value):
5% reservation deposit (comes from purchasers funds).
20% Upon signing the Acte Authentique (comes from purchasers funds).
10% When foundations are complete (5% from purchaser funds, 5% drawn from mortgage) 25% When 1st floor is complete (drawn from mortgage) 10% When the roof goes on (drawn from mortgage).
13.6% When the windows go in (drawn from mortgage).
6.4% When interior walls are complete (drawn from mortgage).
5% When building is complete (drawn from mortgage). Interest would be paid on the amount drawn from the mortgage. | Purchase Costs For Your French Leaseback | When purchasing a French Leaseback property there are a number of costs that are not included in the purchase price of the property. These commonly include: Notary fees: purchasers should allow approx 3.5% of the VAT inclusive price for new build and between 7 and 12% for resale. Mortgage registration fees: these are applicable when purchasing with a French mortgage - purchasers should allow approx 2% of the VAT inclusive price. Solicitor fees: contrary to popular belief, the French notary does NOT work on behalf of the purchaser and is independent acting more as a paperwork administrator than anything else. It is highly advisable for purchasers to instruct a bilingual solicitor qualified in French law to act on their behalf. Prices vary although are commonly between 600£ - 2000£ depending on the level of service. Proxy fees: if the purchaser closes on the purchase at a public notary in the UK,Ireland or somewhere else; they will need to pay the notary a fee for them to notarise the document. This varies from country to country. It generally comes in at about 100£ per document in UK. Accountancy fees: to claim back the VAT an accountant will normally charge between 200€ - 300€.
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| The VAT Rebate For Your French Leaseback |
When you purchase a new build French Leaseback property, one of the main advantages is that you get the VAT back on the purchase price (currently the VAT is at a rate of 19.6%).
This will either be advanced by the developer in which case they will normally pay the last few staged payments, or more commonly, this purchaser pay the full VAT inclusive price and then claim it back from the French authorities.
Typically, each development where the VAT is to be claimed back will choose an accountancy firm to look after this aspect of the purchase.
It is worth stating at this point that is very important to use an accountancy firm as this is a complex process and if the procedures are not respected then you will not qualify for the VAT rebate.
The main reason in giving the VAT rebate is that the French authorities earn VAT during the period that the property is let out.
This is on an understanding that the property will be let out to tourists for a period of 20 years.
If the lease contract was terminated or the property sold before this time, then a part of the VAT would need to be re-paid the French authorities pro-rata. This works out at being 1/20th per year.
On refurbished property or renovated properties, the 19.6% VAT rebate is not normally applicable and the VAT that will be reimbursed, if any, varies according to the development. This should be clarified before purchasing.
Some renovated properties will require such renovation that it will be considered as a ‘new build’ and will qualify for the 19.6% VAT rebate. It is important to establish this before purchasing.
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| The Lease Contract And Property Management Firm | The property management company is chosen before the development is made available for sale and the properties will then be sold on the condition of signing the commercial lease contract. The lease contract is prepared in advance and will be made available to purchasers at the same time as the reservation contracts for signing.
The lease contract will contain such things as what the property is, how long the lease is to run and how much rental income they will pay you during the course of the lease period.
It will also set out any terms and conditions relating to the owners use of the property and also what charges the owner will be liable to pay if any.
In the majority of cases, the property management company will always pay for the general maintenance of the property and its furniture.
This includes replacing any broken or worn out furniture with the same equivalent. The property management also pay the bills including electricity, water, gas etc.
Occasionally, there have been examples of lease contracts where the owner of the property is left to foot the bill for replacing furniture that is obviously something that must be avoided.
Unless you really like the property and wish to acquire it at all costs, I generally advise not to get involved in such lease agreements.
Owners are also liable to pay for major repairs such as structural work, but it is worth pointing out that new properties do come with a 10-year guarantee that covers such work. Owner liability should be checked in the lease contract.
During the course of the lease contract, the property management company will let the property to tourists and people wishing to stay in the area and will look after the maintenance of the property.
Owners do not have to worry about finding tenants, handling change-over or ensuring that the property is well maintained.
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| Rental Income For Your French Leaseback | One of the major attractions to investors is the rental income that is guaranteed by the property management company.
The rental income is nearly always calculated on the ex VAT price of the property, excluding notary and other fees.
Example: if a property was priced at 100 000€ INC VAT, the ex VAT price of the property would be 83 612€. If the property were being sold with a 5% yield, the annual rental income would be 4180.60€. Recently, there have been several cases of properties being advertised with much higher net yields than the property is really offering.
Agents may do this to draw in more customers who have been attracted to the high looking yield initially.
This is not a very honest way of dealing and if you see the same property but with a higher yield you should ask what the yield is based on.
For example: if there is 4180.60€ of rental income and the total ex VAT price of the property is 83 612€ this will give a yield of 5%. However, if the ex VAT price of the property includes 10 000€ for a parking space some agents will calculate the yield on the price of 73 612€ which makes the yield look like it is 5.7%!
This obviously looks more attractive but it is not based on the correct figures so you should ask what the rental income is calculated using as to avoid nasty surprises!
This price is net of French VAT at 5.5% but gross of other costs including ‘Taxe foncière’ (Land tax), accountancy fees, income tax and so forth. In fact, the income that you will receive is subject to French VAT at 5.5% and I will require an accountant to prepare your quarterly VAT declarations for you. Accountants will usually charge in the region of 200 - 300€ per year for this service.
The rental income is normally paid to owners quarterly in arrears although this does differ from development to development and should be checked prior to reserving.
When the construction of the development is completed there is normally a short period consisting of a couple of months where no rental income is earned.
This grace period allows the property management firm to set up inside the development and start advertising the properties to let. Where this is applicable it is written into the lease contract.
The rental income will also be index linked, often using the INSEE Cost of Construction Index as a reference.
How the rental income is indexed will vary from development to development but it is more often reviewed on a yearly to three yearly bases on the anniversary of the lease contract. The review will either take into account the full amount of the fluctuation of the index or, will be capped at a certain percentage of the fluctuation (75% cap is becoming common).
Full details of the INSEE Cost of Construction index as well as archives of how the index has performed can be found here: www.insee.fr/en/indicateur/indic_constr/indic_constr.asp .
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| Personal Use For Your French Leaseback | Some developments will allow for some personal use for owners during the lease period. This is likely to be either some ‘free’ weeks use in exchange for a lesser yield, or, it can be in the form of a discount on public prices.
When the personal occupation is in the form of some ‘free’ weeks use, these weeks are normally to be taken in specified periods that are often set out in the lease contract.
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I am interested in working with more French Leaseback Developers to expand my range of French Leasebacks.
Please do not hesitate to contact me via the contact page.
Please understand that I do not accept all developers and developments until I am sure that it will be suitable for my clientele.
I do check personally EVERY French Leaseback Development forward to me and French Leaseback Developers' previous background.
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