French leaseback?

If you read my post again - I wrote that its up to the buyer to research value.
There are a lot of mugs in this country at the moment, no doubt about that. Too much easy money, laziness, and not enough sense.

There are people in the foreign property business who see the Paddy's coming a mile off.
Many of the agents are Paddys themselves.

To be generous about it, there are some folk who will pay a premium just for the peace of mind - they don't want to have to run the property themselves, so a managed leaseback suits them, and they've got so much borrowing power they couldn't seem to care less if they get charged 10% over the proper market value.
They don't notice it.

Don't be lazy...do the research, look at value, be realistic about location and future marketability.
If the developer is taking the piss - move on!

By the way - with the state of the French economy at present, and the general mood of doom and gloom in the country, the property market in France is not looking like a great bet for capital appreciation OR value at the moment.
 
Surely if you are buying for investment / pension reasons and are guaranteed rental income of 4.7% of the purchase price , it doesn't matter if the price is inflated. You can forget about the property and hopefully have an income for your retirement when the mortgage is paid off.
 
i bought in Languedoc 3 years ago and the price has doubled since so there is good apprectation to be found..tho i think that sort of rate would be rare enough in france..
 
Meccano said:
No ClubMan, not true in my experience.
The guarentee is not underwritten by money coming out of the developers own pocket (i.e. the profit on his sales) but rather from the government, by way of a refund on the 19.6% VAT which is levied on the building costs. So there is no necessity for the developer to have to add a premium to the price to cover the rental guarentee.
Click to expand...
In every leaseback scheme I have seen, the VAT element is refunded in full to the purchaser - so how does this relate to the rental guarantee ?

There may in fact be a premium added to the price to cover the rental guarantee, but I don't believe it has any connection with the VAT refund.
 
euroDilbert said:
In every leaseback scheme I have seen, the VAT element is refunded in full to the purchaser
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under the condition that the purchaser keeps the property for at least 15 year i think...
 
You must keep the property for 15 years to negate the need to refund the VAT. Prior to this if you sell you repay a pro-rata amount of the VAT.

With respect to the pros and cons, my advice is to do your own research. Whilst there are drawbacks there is nothing stopping you buying a good property in a good location with a strong established management company.

It should be remembered that the scheme has been running since 1976 and is regulated. It is hard to imagine a bank lendng on a grossly overvalued property.

It is best to think of leaseback as a long term investment. With a 30% deposit and a fixed interest repayment, the loan can be repaid in say 20 years with the yield. Is there a big downside? I know this is simplistic but i would urge you to find out for yourself. Please PM me and i would be glad to discuss it further.

Yes I do represent leaseback developers, but only because i believe in the concept.

[broken link removed]
 
adj38,

I see one agent in Ireland advertising Interest Only mortgages for Leaseback properties in France. I did not think Interest only was available in France. Have you any knowledge of same.

Thanks
 
Nov Investor

Yes , interest only loans are available. The current terms are;

80% of VAT inclusive price including furniture available for loans over €300,000 at 4.1% for the first year. Thereafter the loan is variable against the 12 month Euribor + 1.9. Giving around 4.75 at current rates.

If you are interested in taking this further i would suggest an apprval in principle - no obligation. Please send me a PM for the relevant info.
 
euroDilbert said:
In every leaseback scheme I have seen, the VAT element is refunded in full to the purchaser - so how does this relate to the rental guarantee ?

There may in fact be a premium added to the price to cover the rental guarantee, but I don't believe it has any connection with the VAT refund.
Click to expand...
The VAT is refunded to the purchaser. But not upfront and in cash! Its bled over the 10 -15 year lease back lifetime.
If you've been looking at developers quoted rates of return - this point was probably not made explicitly clear in their figures.
DOH!
Do you seriously believe the French Government would allow you a 19.6% VAT refund upfront today, and let sell it at full market price tomorrow???
DREAM ON!!!!!!!
 
The VAT is normally repaid by the French Government approximately 6 months after completion. This is in full. However if you sell within 15 years you must refund a pro-rata amount.

In some cases the developer will advance the VAT and reclaim it on your behalf in which case it goes directly to him. You pay the net amount.

The VAT refund is a genuine tax allowance to encourage investment in tourist accommodation, which makes up a large part of the French GNP
 
I'm in a similar position considering a French Leaseback arrangement. To date, the biggest stumbling block is the lack of personal usage available at these developments. You can of course use your own property by renting it at approx. 20% discount off the normal rental rate. Seems a bit rich to me!! However, and I've no intention of revealing the location, I have stumbled across a development in the Montpellier/Carcassonne area (served by St.Michael de Ryan) where the prices for a one bed mezzanine are €70K after the VAT refund. This is in fact a "light leaseback" deal where you can decide on how often you occupy the property subject to a max of 182 days per year. Obviously, the more you make the property available to the developer, the higher the yield. For this sort of money can one go wrong???????
[email protected]
 
There are a number of things you should be aware of if buying a french property

If selling there is curently no double tax agreement in relation to CGT although this is currently being renegioated.
Inheritance legal situation
Tenants have very strong rights i.e. you can't evict a tenant between Oct and April etc
Anything else

 
All contracts are different. Clearly there is a trade off between yield and occupancy. For those looking for prolonged usage there are deals available that allow free use through the winter months with discounted usage through the summer months. Please PM for details.
 
Adj38,
How are these guaranteed yields attractive (most seem to be under 5%), if an interest only mortgage will be 4.75 (and likely to risk further in a years time - based on current consensus on ECB rates)? Surely my net yield will be negative, unless of course I was an ardent optimistic speculator who believes all property prices must rise above inflation for the duration of my investment horizon, and I was prepard to give a (significant?) notional value for capital appreciation in assessing my total return over this period. Based on the frothy nature of current french property prices (and economic commentary on it), the location of leaseback schemes and the fact that french property prices in the late 80s/90s barely kept up with inflation, I am struggling to see how these schemes represent relative value for a leveraged investor.
 
Meccano said:
The VAT is refunded to the purchaser. But not upfront and in cash! Its bled over the 10 -15 year lease back lifetime.
If you've been looking at developers quoted rates of return - this point was probably not made explicitly clear in their figures.
DOH!
Do you seriously believe the French Government would allow you a 19.6% VAT refund upfront today, and let sell it at full market price tomorrow???
DREAM ON!!!!!!!
Click to expand...

Sorry Meccano - this is incorrect. The VAT is normally refunded, in full and in cash in about 6 months. Sometimes it may even be paid up-front, with the builder reclaiming it from the government. If you sell in less than 15 years, there is some clawback of this.
Most (not all) rates of return I have seen are quoted on the net (of VAT) purchase cost, for obvious reasons.
Where did you get your information ?

As I stated before, the price may indeed be inflated to cover the guaranteed return - but this is completely separate from the VAT refund.
 
Askar said:
Adj38,
How are these guaranteed yields attractive (most seem to be under 5%), if an interest only mortgage will be 4.75 (and likely to risk further in a years time - based on current consensus on ECB rates)? Surely my net yield will be negative, unless of course I was an ardent optimistic speculator who believes all property prices must rise above inflation for the duration of my investment horizon, and I was prepard to give a (significant?) notional value for capital appreciation in assessing my total return over this period. Based on the frothy nature of current french property prices (and economic commentary on it), the location of leaseback schemes and the fact that french property prices in the late 80s/90s barely kept up with inflation, I am struggling to see how these schemes represent relative value for a leveraged investor.
Click to expand...
The following is an illustration

Say property = 100,000
Yield = 4.75% index linked
20 yrs fixed = 3.75%
30% deposit
20 yrs repayment = 4980
income yr 1 = 4750
Repaid in 20 yrs
Compare to 30,000 (deposit) in a building society
Property apprecation = ?

As i said this is a long term investment with predictability regarding interest rates and the guaranteed income. If you are looking for speculative gains you should look elsewhere
 
Anybody ever dealt with Global Mortgages Direct from Kilkenny who offer mortgages for overseas property with the collateral being the foreign property? They deal with e.g. French financial institutions and offer mortgages upto 85%. They charge no fee for mortgage approval in principle provided you take out a mortgage. If you don't they charge a €95 fee. They have been in operation since Sept'05. Anybody heard of them or anything similar?

[email protected]
 
Adj,

Your figures don't stack up. I am still paying more than I am earning annually even with a 30% equity contribution and assuming you can get a 3.75% fixed rate mortgage. Incidentally, most of the 'guaranteed yields' are significantly lower for better located property (3.5-4%). You are still basing your model on capital appreciation over a 20 year period ( a very long time horizon), which is longterm speculation. It's disingenous to suggest that this is not a speculative punt which can only be justified on a notional concept of capital appreciation, and all the caveats raised in this thread and elswhere on the Site are particularly pertinent in this regard.
 
Askar said:
Adj,

Your figures don't stack up. I am still paying more than I am earning annually even with a 30% equity contribution and assuming you can get a 3.75% fixed rate mortgage. Incidentally, most of the 'guaranteed yields' are significantly lower for better located property (3.5-4%). You are still basing your model on capital appreciation over a 20 year period ( a very long time horizon), which is longterm speculation. It's disingenous to suggest that this is not a speculative punt which can only be justified on a notional concept of capital appreciation, and all the caveats raised in this thread and elswhere on the Site are particularly pertinent in this regard.
Click to expand...
I specifically did not say what the capital appreciation would be and never would. Perhaps you can give me an example of an investment that is not speculative except bonds. in this regard it is speculative, but variables such as inerest rates and yield are controlled.

I am not pretending there are drawbacks and would urge anyone to make their own enquiries and do their own research.
 
Adj38,

For whatever reason you are not getting my point, perhaps I am not being clear enough. The controlled interest rates and yield (even the best case presented by you) does not give any return to the leveraged investor even with a 30% equity contribution, and the investor, based on your figures, will continue to have to make annual contributions to the investment in addition to the 30% upfront equity. The only way (s)he would get any return would be on a speculative basis in the context of capital appreciation, i.e. the capital appreciation in year 20 would exceed the contributions up to that date in NPV terms. So the investor has to make a guesstimate of capital appreciation in order for the investment to have any merit. This, by its nature, would be speculative. In sum, you are selling a speculative investment.
 
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