French Leasebacks: A Quick Overview
‘Leaseback’ properties in rural and tourist areas of France are a government-backed effort to encourage the development and acquisition of land.
1. Résidences de Tourisme
Short-term rentals in tourist areas of France are offered through leaseback properties, whilst long term rents in the same area are offered through buy-to-let homes.
Leaseback properties are leased back to you by an operator, whereas buy-to-let properties are purchased directly from the owner.
Buy-to-let does not allow for a VAT return, whereas leasebacks do.
As with any long-term property investment, you need to carefully pick your home to ensure that you get your money’s worth out of the deal.
Additionally, you should verify their competency and financial stability.
In addition, because most of the people who live in these complexes are vacationers, they aren’t good choices for long-term habitation like a retirement community.
Many regions of France offer leaseback properties with a VAT return on the purchase price, however income tax reductions are only accessible in specific sections of the nation.
Before investing in any of these projects, get the opinion of a qualified specialist.
2. The Leaseback Market in France
Over the last 30 years, France has seen an increase in the number of tourists, with an estimated 70 million visits every year.
The projects are a combination of a hotel and a furnished apartment – effectively serviced apartments for short-term vacation rentals.
More than 120,000 flats and 500,000 bed spaces are available in more than 1500 of these complexes around France.
More than two-thirds of all projects are found along the coast, with 17% in urban areas and 8% in rural areas rounding out the list.
City projects cater to the demands of both the corporate sector and visitors, since conference facilities are generally included.
Pierre et Vacances is the market leader in all of these initiatives, accounting for around a third of all bed spaces.
3. How Leasebacks Are Executed
A developer, a commercial operator, and an investor are all involved in the building of a tourist residence.
In most cases, a private investor purchases a property from a property developer and then leases it back to an operator, who runs the facility.
To each investor, the operator (gestionnaire) gives a guaranteed set rent of roughly 4% annually.
In order to generate money, the operator must rent out the rooms and services to guests.
As part of the deal, investors are usually granted annual access to a unit or villa in the complex (which may or may not be their own).
It is common for investors (copropriétaires) to form an organisation that may communicate with the operator and address any concerns they may have.
‘Village de vacances,’ on the other hand, is a resort-owned vacation complex, and should be separated from ‘résidentielles de tourisme,’ which provide serviced accommodations.
Although not all operators are members of the Syndicat National des Résidences de Tourisme, there is a professional organisation for operators.
4. Leaseback Contractual Agreements
First and foremost, you’ll sign a contract to buy an off-plan property with the developer. Vente dans l’état Future de Achèvement is the name given to these contracts (VEFA).
When a 15-year-old building has to be renovated, the contract is called Vente en état Futur de Rénovation (VEST) (VEFR).
Investment in a freshly renovated development is also an option.
It is part of the contractual agreement for the developer to provide contractual guarantees of completion and a ten-year building guarantee as part of the contractual procedure.
For these kinds of formalities, it’s best if you work with your own notary.
At Buying Off-Plan Property in France, you can find out more about VEFA contracts.
You’ll need to sign a commercial lease with the complex’s operator for a minimum of nine years after construction is complete (or when you sign the construction contract).
For the tax savings to be available, commercial operators must be established within a short amount of time and these agreements must be maintained, albeit there are special provisions in place should the operator go bankrupt or cancel their lease.
5. Leasebacks have a number of tax advantages.
The loi Bouvard tax benefits apply to these developments.
Under the loi Bouvard, there are no geographic restrictions on the availability of tax reductions that are offered.
Additionally, there are no rent limitations.
The tax incentives are also available for investments in student housing and in care facilities for the aged, in addition to tourist residences.
There is a return of the VAT paid on the acquisition and construction in all developments. For new construction, the rate is 19.6 percent, but for renovations, it can range from 0 percent to 19.6 percent, depending on the circumstances of each instance.
At a rate of 25% each year, the tax cut for investments will last for nine years.
Tax exemption for investments made in 2010/12 cannot exceed 20% + 8% of total annual income for a period of nine years.
The discount is offered up to a maximum purchase price of €300,000.
You have complete control over the property and are free to sell it at any moment.
Before this, if you sold your leaseback within 20 years, you were responsible for a pro rata repayment of the refunded VAT.
You can now sell your leaseback at any moment without having to pay back the VAT in accordance with other European nations. However, the leaseback agreement must be maintained by the new owner.
You may have to pay French capital gains tax at 28.1 percent if you sell your home within the first 15 years of ownership, but after six years of ownership, the tax rate is reduced to 10 percent.