The French government introduced a property leaseback scheme (rental guarantee scheme) many years ago to boost tourism and the holiday rental market - and they have recently made a number of changes to improve it.
Article on the recent improvements in the French leaseback scheme
The rules are strict and it is, therefore, important to understand how it works and what the constraints are:-
All developers building leaseback properties have to register the development as being leaseback which means it is generally not possible for clients to purchase the properties for their own use exclusively as this would breach the terms of the building licence. Usually the owners of a leaseback property will have the ability to spend some time using it themselves but this will be limited.
The basic principles are:
The purchaser owns the freehold but is required to enter into a lease with the developer or a management company to rent out the property;
- The lease term will be a minimum of 9 years and can be for 11 years and will specify the return the owner can expect. This return will invariably be guaranteed – whether or not the property rents out the owner will receive the guaranteed yield. It should also be index-linked;
- At the end of the lease term the freeholder has the option to take possession personally, rent out the property privately or renew the lease with the management company;
- Within 3-6 months of purchase the freeholder can reclaim the 19% VAT paid on the purchase price at completion;
- Frequently owners on a leaseback development will be able to rent rooms or apartments for their own use at discounted rates if they wish to spend more time at the development than their lease terms provide for own use;
- Most leaseback developments are specifically designed for tourist accommodation and will, therefore, include bars, restaurants, spas and the like.
As can be seen, these are ideal investment properties but not ideal for those seeking to spend significant amounts of time in France.
The resale value will also be affected by the remaining term of the lease (you can sell the freehold at any time but if the sale occurs within the period of the lease the property will have to be sold with that lease in place still). In general, the longer the period still remaining on the lease the more the value will be determined by the rental yield and the closer the lease is to expiry the more the property will be valued on a vacant use basis. Having said that, on good quality developments with plenty of on-site facilities the value of the property should be underpinned somewhat better in times of slower property price inflation or when prices fall back.