UK Overseas Guide: ski property France
Buying French Leaseback Ski Property
Introduction
The purpose of this guide is to introduce you to the concept of French leaseback property.
Leaseback property is a hassle-free way to invest in ski property in France. An investment in a ski leaseback will provide you with a guaranteed annual rental income and private holiday ski weeks to enjoy each year. Your maintenance and running costs will all be paid for you for the first 9 years on your investment. Best of all, you receive a 19.6% discount from your purchase price.
What is a French Lease Back Property?
A leaseback investment is primarily for “off-plan” property purchases. It is an arrangement where you buy the freehold of a ski chalet or ski apartment and then grant a Lease to a Management company to rent the property.
In France, only approved (government-bonded) companies can offer leaseback opportunities and those that do are usually subsidiaries of major French companies. The supply of leaseback property is strictly limited at any one time.
The term of the Lease is typically for 9 - 11 years and secures you a contractually guaranteed rental income of between 3% - 5% of the net purchase price.
The details for each leaseback contract will vary from project to project. Typically, the contract will state that the Management company pays most (or even all) your expenses in relation to the property for the duration of the lease – including rates, water, and electricity charges, community fees, repairs and replacements. They are also required to return the property to you in the same condition in which you purchased it. And the property will be fully furnished for you.
Another major incentive is that you are also eligible for a substantial discount to the market value of the property. This is the amount of VAT that is chargeable on all new property in France. This rate is 19.6%, so your net purchase price is 80.40% of the market value price.
Leaseback properties usually have options for you to use the property for several skiing weeks a year, as well as in the Summer. Each development has its own usage allowances built into the deal, sometimes with more than one option available.
Some developers also allow you to use your ‘free’ weeks at other resorts they manage, which can be a great bonus. However, do bear in mind that your guaranteed rate of return will most likely be lower if you have a large number of ‘free’ weeks per year, compared to what it could be if you had fewer weeks or no time allocated for your own use.
What are the costs on top of the purchase price of buying a leaseback property?
Notary fees and stamp duty are normally 2-3% of the gross purchase price when buying an off-plan leaseback property. They can be up to 6% when purchasing a leaseback property in an existing refurbished building.
The Developer will appoint a notary in France to issue contracts and collect the reservation deposit and stage payments. In addition UK Overseas offers an English speaking legal service to our Buyers. We have appointed a second notary to act for you as Buyer to draft your reservation contracts, translate documents and answer any questions regarding the Lease. They will also prepare Power of Attorney documents at the time of signing the deeds if you choose not to travel to France to sign the deeds.
What is the payment structure when buying off-plan leaseback property?
To secure your property you need to make a bank transfer to the Developer’s appointed notary of between 2 – 5% of the gross purchase price. These funds are secure and fully refundable in the event that you decided not to sign a reservation contract or were refused a mortgage. Your deposit will only be released to the Developer once you have signed the deeds.
Once the Developer has laid the foundations of the property, you will sign your deeds (l’Acte Authentique) and be requested to make a second stage payment of approx 30% of the gross price.
You or your Bank providing your mortgage will then release stage payments throughout the rest of construction, usually in 10-15% installments until completion.
What is the best way to finance my leaseback property purchase?
Please request our Leaseback Mortgage PDF for full details on Euro mortgages provided by our recommended French banks.
Alternatively - you can calculate your mortgage by using our Mortgage calculator:
We have English-speaking French partner banks lending from 70% - 100% of the net purchase price.
If I want to sell my leaseback property what would the selling costs be e.g. notary fees, agents fees etc?
When you sell your property - the buyer pays all the notary fees. So you have no legal fees.
Our partner French licensed Immobilier can discuss with you re-marketing your property.
Am I the freehold owner of my leaseback property?
Yes. You become the freehold owner of your property on the day you sign the deeds. This stage is reached when the Developer has laid the foundations of the building, and you will be required to make a stage payment of approx 30% of the purchase price.
You are then always the freehold owner of your property. The leaseback contact with the Developer or Management Company does not change this. That is simply a 9 / 11 year contract to facilitate lettings and look after the building.
Are there any restrictions on selling my leaseback property?
No. You can sell your property at any time after you have signed the deeds. If you sell during the initial lease period, then the buyer will need to honour the leaseback contract and he will receive the rental income and benefits.
What happens at the end of the initial leaseback period (9 years)?
The answer to this question will be contained within your lease contract with the Developer. With the vast majority of Developers you are free to choose your own rental arrangements once the lease has expired, or you can re-new the lease.
What happens to the VAT when I come to sell my property?
New French VAT law boost for leaseback properties: you can now sell your leaseback property at any time (even on completion) with ZERO VAT to repay. Previously you had 20 years to wait to recoup all of the VAT you originally saved.
In effect this means you gain an instant 20% profit on completion .
This is a surprisingly little-known modification to French leaseback law but the changes for leasebacks are very attractive.
In short, it has been possible since 1 January 2006 to sell a leaseback on at any time without repaying the VAT which was recovered on the purchase provided the leaseback arrangements stay in place - which will almost always be the case.
Q: What are the practical consequences of this law change?
A: Thanks to article 257 bis of the French Tax Code, when the owner of a leaseback property sells his property to someone who will carry on this leaseback – almost always the case - the seller will not have to pay the VAT back. This is also permitted in the first five years after completion of the building.
This important change to the French Tax Code will bring a greater liquidity to the resale market for leasebacks and is to be welcomed.
Please note that French tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case.
Is my rental income guaranteed?
The rental income is guaranteed throughout the period and is usually paid quarterly in arrears.
These annual rental income you receive is indexed to construction costs (the INSEE Index of Construction Costs). In other words, each year, as construction costs increase, your cash receipts increase as well. If construction inflation is 4%, your rental income should increase about 4% as well. Your return is evaluated each year. The worst case scenario is that you always get your original guaranteed return.
Would I make more money by buying a property outright and letting it myself ?
Potentially, yes. However, your rental income would not be guaranteed (particularly during low-occupancy periods) and you would be responsible for all costs (including maintenance, cleaning, gardening, advertising, changeover costs, etc) as well as being responsible for such things as dealing with any emergencies that may arise.
If you wished to use the services of a management company, they can charge up to 25% of your rental income in their fees. Leaseback properties come fuuly furnished and the Management company is responsible to replace any damaged items for the duration of the lease.
How long have leaseback schemes operated in France? Will they run forever?
Leaseback schemes have operated successfully for more than two decades. However, the
French Government may well close the schemes down if / when they consider that its targets for
increasing the amount of tourist accommodation have been met. It is impossible to say when this
may be.
Could the management company go bust?
All leaseback companies are required by law to have professional indemnity insurance. All of UK Overseas clients are large well-established corporations managing multiple leaseback developments across France.
Do I pay French income tax?
No.
Is the lease always for 9 years?
No. Nine years is the most common period, and the minimum period.
Do I have to buy the property furnished?
Yes. All leaseback properties are sold fully furnished and equipped ready for letting. You become
the owner of the furniture at the end of the lease.
Are Leaseback properties always new builds?
Generally, most leaseback developments involve newly built apartments, although some major
renovations or refurbishments can be included in the scheme. When purchasing off-plan leaseback property you receive the full 19.6% VAT refund.
In the cases of refurbishment or renovations, the amount of the VAT refund is lower. It is generally proportional to the amount of renovation/refurbishment that has taken place. (Please note that Notaire fees will be up to 6% higher if the development is not new.
Do I have to apply to get back the VAT?
The management company will usually do this for you.
Do I have to pay Capital Gains Tax if I resell?
Yes. The normal rate of Capital Gains Tax for non-French residents, and who are tax-resident within the EU, is 16% of the net gain. For residents of non-EU countries, the normal rate goes up to 33.3%, subject to any Double Tax Treaty that is in place between France and your country of residence.
After 5 years of ownership – your capital gain is reduced by 10% for every full year of ownership. Therefore after a total of 15 years of ownership you will have zero capital gains tax to pay. If you held the property for a full 10 years ownership then your capital gains liability would be 50% of the gross gain @ 16%.
UK Overseas work with a French partner immobilier to offer a full re-sale service of your leaseback property.
For further details of all of our leaseback ski property for sale - please click this link and search through our current French Alps property portfolio.
