Leaseback Schemes

"Leaseback" Developments – an attractive investment option

France receives more visitors annually than any other country in the world. In order for them to have somewhere to stay and to boost the French tourist industry, the government offers incentives to those prepared to invest in quality rental properties (called "Résidences de Tourisme" or "Leasebacks").

Launched in the 1970's to develop winter sports resorts, Leaseback developments have grown in number to the extent that there are over 1200 in existence today. They are available in many parts of France, including Paris, Normandy, Brittany, the Alps and the Cote d'Azur. The developments are multi-unit resort or student housing and are rented out on a short-term basis as fully furnished and serviced apartments or studios.

Leasebacks are real estate developments that are sold "off plan" (before they are built). Investors purchase the freehold of a property and then enter into an agreement with a management company to lease back the property for a contractually guaranteed annual income of up to 4 – 5% of the value of the property. As an added incentive, the French government allows investors to reclaim the 19.6% VAT paid on the property after construction is complete. The following issues should be noted:

• The investor has use of the property for up to 6 weeks per year.
• The responsibility for identifying, placing and managing tenants as well as paying utility bills, upkeep and maintenance rests with the management company
• The management company is under obligation to return the property to the investor in good condition at the end of the lease period (normally 9 or 11 years)
• Only government-approved companies are permitted to operate the leaseback scheme
• French mortgages are available to finance a leaseback investment
• French mortgages offer tax advantages and deductions to investors

Financing a Leaseback

An important consideration for French banks in the raising of finance is the applicants "debt ratio". Monthly debt payments including those related to a new mortgage cannot be more than one-third of regular monthly income.

Axis Property Consultants, in their capacity as mortgage brokers, assist investors in securing pre-approved borrowing terms from banks before entering into leaseback agreements.

Obligatory Life Insurance

French banks insist that investors take out a life insurance policy to cover the value of the mortgage; the bank therein must be assigned as the beneficiary of the policy.

Borrowing Conditions

Financing can be obtained for up to 25 years at either variable or fixed interest rates. The interest rate will depend on the buyer's financial profile, the duration of the loan and the initial "down payment".

Banks offer finance to foreign investors of up to a maximum of 85 percent of the value of the property. Axis Property Consultants through its network of international banks, assist investors in the opening of a French bank account from which mortgage payments can be debited.

Contact Axis Property Consultants for a preliminary meeting or discussion.

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