Guide to French Leaseback system

About the leaseback system

The Leaseback System is a scheme  was introduced by the French government in 1976 to boost the tourist industry in different parts of France. The French government was concerned about the slow French housing market and a slow down in tourism in certain areas of France. The leaseback property buying system was introduced to counteract these problems. Leaseback developments were originally in the less popular areas of France but the scheme has greatly expanded since those days

How the leaseback system  works

Buyiers purchase a newly built freehold property, these will come fully furnished 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 % of your initial investment for 9 years. Your property is available for you to use in certain weeks of the year for no cost. It is important to come to an agreement at the beginning of your contract about which weeks will be available to you. Also you must make sure you are going to get vacant possession of your property at the end of the 9 year period. The lease contract with the management company is renewable after the 9 years period.

The advantages of buying a French house on a leaseback

The advantages of purchasing a French home using the lease back system is  clear. You will receive a guaranteed rental income, averaging between 3 to 6%. The managemnt compnay will rent out your property for 9 years. At the end of the agreed period, you get your property back, good as new, having received 9 years of rent, and with 9 years capital appreciation. The other main advantage of this scheme is that when you originally buy your property, you don't have to pay VAT, which represents a 19.6% saving! The French government allows you to benefit from a VAT concession, which means a saving of 19.6 %* on the initial property price. In most cases you receive the VAT back from the government within 4 to 6 months of the purchase of the property. Some developers may advance the VAT refund and receive the funds direct from the government

Selling your leaseback property

As the owner of the property, you are entitled to sell it at any time during the leaseback period but because you would be selling with the residue of the lease term, this would be reflected in the selling price. Also a proportion of the VAT discount you received when you purchased the property would have to be refunded ( 1/20th for every year before 20 years have expired). It is also important that you sign a contract that includes that you get vacant possession of your property at the end of the 9 year period.

The bills you have to pay owning a leaseback property

While all the utility bills are the responsibility of the management company, the “taxe foncière” is still your responsibility as the owner. The upkeep and general maintenance of your apartment is the responsibility of the management company too and they have to return your property at the end of the 9 years in perfect order. 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. Your rental incomes are received quarterly or yearly.

Overseas buyers love leaseback and ideal solution for the armachair investor

The schemes success means that  many  developments do sell out extremely quickly, due to the good value they represent for the long term investor. In summary the leaseback scheme is an excellent long term investment with very little risk and while it is not as flexible as renting the other two ways, it does make sound financial sense. It is a stress-free purchase for investors living abroad.

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