French leaseback property

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peggybetty

Guest
I read this article yesterday about French leaseback property, similar article in Indo property last week.
[broken link removed]

I'm interested but just wondering if anyone has any comments or opinions ?

Thanks
Nervous investor !
 
There are several other topics dealing with foreign property investments in general as well as French leaseback schemes in particular which might be of interest. To find these browse back through the topics in this forum.
 
french leaseback

I purchased a studio in the south of france - but just a straight purchase. But I intend to use the property regularly for a few breaks. You may be only using it as an investment. But these leasebacks, or at least the ones I have seen, are always a bit "in the middle of nowhere" I felt. Purchasing the property in the normal manner gives you the option of buying it exactly where you would like to go yourself. But then the renting is your problem. I don't plan to rent at all.
 
Re: french leaseback

It's probably covered elswhere but I read in the Sunday Tribune at the weekend that the France-Ireland Double Taxation Agreement does not currently cover CGT on the sale of holiday/investment properties so if you sell a French property then you are presuably liable for CGT both here and abroad.
 
cgt

True, but I believe it is the subject of a forthcoming agreement, at least I hope it will be in place before I ever plan on selling!
 
Re: cgt

Isn't it true to say that after a number of years your CGT liability in France drops and I beleive that after 10-15 years its zero
 
Re: Leaseback

Peggybetty - I read the article that you mention. I'm never too sure why the Irish newspapers 'plug' some developments and not others. It is not clear if they include developments because the journalists believe them to be good investments or for other more obscure reasons. Perhaps in this case the fact that the developers are Irish may have played a part.

When investing in French leasebacks, you should be satisfied that the developers and management company have a track record of successfully constructing and running 'residence de tourisme' schemes as well as having sound finances.

Historically the best capital appreciation is found in Paris, the Cote d'Azur and the Alps. Price appreciation north of Paris may not be as good.

It may be worth calculating the cost per m2 for these developments and comparing it to other leaseback schemes.

When buying you should keep your future market in mind i.e. select a location where ideally there will be good rental and resale demand. As the adage says 'you make your money when you buy and not when you sell'. I personally prefer urban areas e.g. units in cities for around 100k with yields of about 6% net. But I guess if you like golf and plan on making personal use of the units then the developments mentioned in the article may be suitable.

Clubman - what you say is true. The treaty will (and must) be updated in order to bring it into line with other similar treaties.

Regards,
Paidi O'Reilly
(paidioreilly@hotmail.com)
 
Cashflow?

Curious, and would love to hear from someone that has bought. Would love to see a cashflow exercise done for French Leaseback.

Example:
Property price say 100,000 + 19600 VAT. Assume an ineterst only mortgage.

Initial Costs
( Legal, fees, mortgage set up costs etc )

Rebates
Vat

Ongoing Income
Rental Return

Less Ongoing Costs
Local Taxes
French Income Tax (Tax Fonciere)
Irish Income Tax
Typical Mortgage Costs
Any other costs
 
Re: Cashflow?

Has anyone actually sold a leaseback property yet? The schemes are very tempting but I can't help but get the feeling you would not be able to sell them on after the lease is finished. I doubt the french themselves would want one.
 
Re: Cashflow?

Has anyone actually sold a leaseback property yet?
Click to expand...
It would be nice to hear from anyone that has, yes. But the bigger problem as I see it, is not trying to sell one today, but rather in 10 or 20 years. Because the leaseback iniative is relatively new, and so demand for this type of property is still quite high today, it shouldn't (?) be that hard to resell one now. But 10 or 20 years on from now, the demand may well be satisfied, and today's new properties quite old and tired. In that scenario it may be alot harder to shift your property.
 
Don't think you'll find...

... any that have sold due to the fact that you have to hold on for 20 years to sell in order to benefit from the full vat rebate. I'm not sure they were on sale to non-residents 20 years ago. Could be wrong.
 
Re: Don't think you'll find...

Alan, try this link to get a spreadsheet on projected cashflow/returns on one of these. I haven't actually seen this one myself yet. I used to have a link to another one online, but can't find it at the moment.
 
Cheers Sunnyday

Have sent on a mail to get the spreadsheet. Will post details if it comes through.
 
Re: Cheers Sunnyday

I still can't find the spreadsheet I used to refer to, but it actually showed a small monthly loss initially, in the order of about €100 pm decreasing to 0 by about year 10. I think the yield was lower though, which would explain it. Thanks for posting yours.
While the figures look good, does anyone see any obvious problems or "massaging" of the figures??
 
Re: Cheers Sunnyday

I think that they have done themselves no favours with this spreadsheet.

They are quoting 4.9% mortgage interest rate but the calculation seems to use an interest rate higher than that. The mortgage repayments are 6282 on 80000 per annum or 7.85%.

I'd wonder about the accountants fees also? Accountants charging €250 per annum.

The also have a 2% mortgage arrangement fee. Thats expensive I would have thought although I believe organising loans in France for leasebacks isn't that easy.

There was a flier in either the Tribune or SBP yesterday about a seminar in UCD I think the weekend after next. All to do with French property. Cost in €10.
 
Re: Cashflow?

Hi Sunnyday

>> But the bigger problem as I see it, is not trying to sell one today, but rather in 10 or 20 years'

Like any other real estate investment, you will make your money when you buy rather than when you sell. If you carefully choose your leaseback unit then you can at least attempt to minimise future risks. My preference is for units in areas of high rental demand and resaleability i.e. I prefer urban areas (e.g. Paris, Toulouse, Bordeaux, etc.) where in the future you have a potential market of tourists/business people/students and locals. I cringe when I see some developments consisting of timber huts hanging off the side of mountains. If you keep an eye on the Sunday property supplements you may have seen one or two of those!

If you do adequate research then I would prefer to have to sell a leaseback unit after the lease than during it (especially after the first year or two). The reason I say this is that your initial return is a fixed percentage of the net price you pay for the unit. It then increases at the rate of INSEE inflation per annum, which is generally far less than property price inflation. Assuming that property prices will continue to increase, your rental return as a percentage of the increasing value of the unit will decrease each year. Hence as each year passes the unit is less attractive to investors. It is not until the initial lease expires that you will have the opportunity of bringing the rent back in line with the value of the unit.

The above point is crucial in understanding the nature of leaseback investments. They are a good long term (i.e. >10 years) investment. Despite what some selling agents may tell you they are not suitable as short to medium term investments. Hope this helps.

Regards,
Paidi
 
Re: Cheers Sunnyday

Hi Alan

>> 'The also have a 2% mortgage arrangement fee. Thats expensive I would have thought although I believe organising loans in France for leasebacks isn't that easy'.

Organising the loans shouldn't be too difficult. But the lenders (because of regulations) are strict on affordability rules. You should not pay much more than 1%. Brokers exists who can make the application relatively painless - but check their fees beforehand.

>> 'For this I have assumed property growth of 2.5% per annum. More conservative than the 7% they use and also probably a fairer reflection given that leasebacks may be harder to sell on'

I would have though 2.5% to be on the low side but then again it is best to be safe than sorry. Prices of apartment units in better areas are increasing by over 15% per annum at the moment - this figure is based on sales of all apartments (and not just leasebacks).

If you want a spreadsheet that includes taxation calculations please let me know as I should have one somewhere.

Regards,
Paidi

PS I don't believe your calculations include items such as translation costs, independant legal advice, travel costs to view development, etc.
 
Thanks Carriglee....

Would be interested in seeing that spreadsheet. Would you mind mailing it to tlaw at eircom.net when you get a chance.

The reason I was conservative with the growth propjection was more down to the uncertainty of the value of the property + vat increasing at the same rate as non-leaseback properties.
 
Re: Thanks Carriglee....

Thanks indeed carriglee for the input. Can you possibly post the spreadsheet here as Alan has?
 
Fixed Rates Available in France....

Got this from Barclays France. I'd say a lot of peopled here would fix long term if similar rates were available here.

Fixed rate mortgage : current rates are between 3.50% and 4.30%

The rate depends upon the term of the loan and the amount of your personal contribution. As an example, with a 30% contribution to the purchase cost, the rates are as follows:
* * * *
•* * * * less than or equal to 7 years : 3.50%
•* * * * more than 7 and less than or equal to 10 years : 3.80%
•* * * * more than 10 and less than or equal to 12 years : 3.95%
•* * * * more than 12 and less than or equal to 15 years : 4.15%
•* * * * more than 15 and less than or equal to 20 years : 4.30%
* * * *
* * * * Part or all of the outstanding balance can be repaid in advance, subject to an early repayment charge of 3% of the amount repaid.

( Not sure however if these would available on leaseback properties ). They also sent me a useful brochure on buying in France. If anyone wants it, email me.
 
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