Many people buy new build property in France mainly as an investment. For some
people the rate of rental income is the most important factor and for others,
the predicted capital growth will be more important. It really is vital to
decide which you are looking for and for how long you are looking to hold the
property.
Rental income is the most certain figure as this can be guaranteed under certain
schemes. Capital growth prediction is a matter of understanding the market
really well. This is something that we are very good at and have a proven track
record of good investment advice.
The leaseback scheme, is the most commonly recognized investment purchase scheme
in the world and was introduced by the French government in the early 1980s. It
has become accepted by national and overseas buyers as the 'hallmark' scheme
when it comes to property investment.
If you're looking to earn rental income on a property in France, with some personal
usage, whilst benefiting from a saving of 19.6% on the property price, then the
leaseback scheme may offer you what you are looking for. With such schemes it
is unusual to obtain rental income in excess of 4.5%.
Within the leaseback scheme there are also apartments designed as student lets
which offer no personal usage. Sometimes developments offering no personal
usage will offer rental returns of 5%. Do not forget that when calculating the
capital growth of such a property you will need to combine both the rental
return and capital growth to see what your investment is really worth.
The leaseback scheme for investment property
This was introduced to boost the construction and tourism industries and
represents an investment opportunity and a safe and easy way of making your
property abroad pay its way. So, how does it work?
You buy a new property on a development offering the leaseback scheme i.e. where a
rental company is available to provide services such as reception, provision of
household linen, cleaning and sometimes even breakfast.
You sign a rental agreement with the rental management company. The agreement
is for a minimum period of 9 years and is renewable after that period. This
allows you to benefit from the very attractive VAT concession, a saving of
19.6% on the property price!
The VAT concession: The French government earns VAT on the rent paid by holiday
makers and the repayment of the initial VAT concession is made pro-rata over 20
years. This means that if you sell your home within the first 20 years, the VAT
balance (i.e. 11/20th after 9 years) is deducted from the selling price (within
the first 5 years, the full amount is deducted). The new owner also takes over
the remainder of the lease.
Rental income and personal use: The terms and conditions vary according to each
development. Generally, the more time you take out for personal usage in high
season, the lower the guaranteed rental income will be.
Generally, leaseback property is most interesting as an investment tool to
those people looking to hold the property for 20 years and, therefore, obtain
the full 20% discount of VAT offered at the purchasing stage. It is trouble
free and can be the ideal answer for creating a pension portfolio.
The above information is provided as a general guide only. Many developments
offer a specific variation of the leaseback scheme and full details of
individual schemes can be obtained from VEF.
Classic freehold
Some developers offer a guaranteed rental income option even when you are
buying a property not offered as leaseback. The features of such a scheme are:-
There is no VAT concession available and, therefore, flexibility when reselling
your property.
You will sign a rental agreement with a management company who will guarantee
you a certain rental income in return for use of your property. This rental
agreement is likely to be for a 3 year period and renewable at your decision
after that. Again, terms and conditions do vary and you will need full
information on any particular development before you make your decisions.
The advantage of such a scheme is that it allows you to obtain rental income
(and, therefore, cover some of your expenses) until you are ready to take full
ownership of the property.
You may also choose to buy a classic freehold property and arrange the letting
and management of it yourself. You can do this either 'hands on' or by using a
local rental company. If you decide to use a rental company you will need to
deduct around 30% of the rental received to pay their fees.
New build property for holidays or permanent living
Many more people nowadays are thinking about buying new build property instead
of resale. They are obviously tempted by the thought of the low maintenance and
the better value for money that these properties tend to offer. It's also
exciting to move into a brand new home. Another major attraction of most new
build is that the properties are set within or close to a town or village,
where you will be part of the everyday life with the chance to get to know your
neighbours.
New build homes, chosen by VEF, also offer construction and structural
guarantees and high quality of fixtures, fittings and modern comforts, such as
double glazing, sound-proofing and thermal insulation.
A new build property gives you the chance to enjoy your holidays, or new life
overseas rather than spend all of your time on DIY!
