Leaseback - New legislation

Apparently there is new legislation which came in 3 weeks ago whereby if you sell your leaseback property then you do not have to pay the VAT back tp teh Government.

i see there is a place in cannes - advertisd this w/e - in the sunday papers whereby all you need is 2% of the apartment cost - excl. VAT,including fit-out - whioch has an 11 year lease.

Does this sound good you people ?

The main disadvantage I think is that the premium for the privelige of a leaseback may be too much.

But after that I'm thiniing it's pretty much 100% finance with guaranteed rental.

Any thoughts?

What do you consider "premium for the privelege of a leaseback"

You mean what do i mean by It ? Or what do i consider too much?

What I mean is that if hypothetically you had 2 properties side by side and exactly the same in every respect 9Wouldn't happen in real life) and one was leaseback and one wasn't then the one which was a leaseback would cost more.
They have guaranteed rental periods normally for 9 or 21 years and are hassle free.

A bit like how section 23 propertuies in ireland have a premium due to the tax breaks associated with them.

Hey people,

I'm disappointed this thread didn't get more interest.

In a nutshell - you get a new apartnment for €5k down (you don't have to get the vat as a refund anymore- it's taken care of now at source) with an eleven year rental guarantee.

Like - surely it can't be that bad a deal? Or am i missing something?

If the interrest rate exceeds the rental guarantee, interest rates continue to increase, the property is overpriced so there is no capital growth, and the property is very hard to liquidate because it is tied to an 11-year guaranteed rent then it could MOST CERTAINLY be a BAD DEAL.

The VAT is only occasionaly deducted at the source. Most of the time you pay it and claim it back within 6 month after closing. The main problem with leasebacks is the same protections you mention hamper capital appreciation.
By this I mean if it costs 100k with a 5% yield over 11years. Even allowing for rent increases, which are normaly 2 thirds of INSEE index every 3 years, it is not attractive to buyers if you want to sell it on - This is because if you price at at 130k they buy still gets the rental agreement you signed up for so 5% of 100k becomes less than 3% of 130k so it not attractive at that price. So you either sell it for a small profit or wait until the end of the lease. The majority of leaseback, by the way, are renewable at the descretion of the management company, so you may have no choice but to renew.
Like section 23 properties here they tend to be in areas that developers would not otherwise build in. When they are in better areas they tend to be refurbishments.
I have not heard anything about a change in legislation about the VAT??and I know people involved with them who have not mentioned it. What is your source on this ?? as I suspect if it was true it would be heavily pebbled

barryo said:

I have not heard anything about a change in legislation about the VAT??and I know people involved with them who have not mentioned it. What is your source on this ?? as I suspect if it was true it would be heavily pebbled

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I heard it from an agent selling trying to sell one to me.

Before you laugh at tha I also read it in this months edition of "irish property buyer" - see page 126.
To quote the piece directly
"the good news is that under 'article 257 bis' of the french tax code nowspecifies that you can sell a leaseback property without repaying the vat - as long as the leaseback agreement is carried on by the new owner"

Fair enough - It is generally believed leasebacks are overpriced from the outset, so as to factor this VAT deduction in. If your in for the longhall some leasebacks may be OK but it wont wash its own face during the first lease. So ROI can be poor and lock up your money, especially allowing for reason already explained. Classic sale properties are more expensive in France for good reason. Finally, and probably their biggest drawback, is the fact they are always tiny in size. The agent will tell you its normal but it's not.

Will there be an influx of leasebacks coming on the market 12 years from now ?. What about the building standards - what condition will they be in 12 years from now ? Would it be better to invest in a renovation in Paris than in a new development ?. Anybody have any ideas!. Also what alternatives would be better for yield and capital appreciation at the present moment ? Alot of questions and thanks for sharing any ideas!