The French leaseback property market presents a consistently attractive avenue for investors seeking a blend of property ownership and hands-off management. The government-backed initiative, focused on bolstering tourism in key regions, offers a unique structure where investors purchase freehold property and then lease it back to a management company for a guaranteed rental income, typically around 4% net. This ‘résidences de tourisme’ model provides a predictable revenue stream, often likened to a high-yield savings account, coupled with the potential for long-term capital appreciation in desirable French locations.
A significant draw of the French leaseback scheme is the substantial financial advantage of a VAT refund (typically 20% on new-build properties) at the point of purchase. This immediate saving significantly reduces the initial investment outlay, enhancing the overall attractiveness of the proposition. Furthermore, the management company assumes responsibility for the complete upkeep and maintenance of the property, often providing hotel-style services, thereby alleviating the typical burdens of property ownership for the investor. This hassle-free management, combined with the guaranteed rental income, makes leasebacks particularly appealing to those seeking a passive investment.
The geographical diversity of the French leaseback market further contributes to its lucrativeness. With developments concentrated in popular tourist hotspots, including coastal resorts, renowned ski areas, vibrant cities, and picturesque countryside locations, investors can strategically choose properties aligned with their investment goals and risk appetite. The strong and consistent influx of tourists to France, numbering in the tens of millions annually, underpins the demand for short-term rental accommodation within these résidences de tourisme, supporting the viability and profitability of the leaseback model for investors.
While the initial lease agreement typically spans nine to eleven years, the evolving legal landscape has further enhanced the liquidity of this market. The removal of the pro-rata VAT repayment clause upon resale (provided the new buyer continues the leaseback arrangement) has made exiting the investment at any time more financially flexible. This, coupled with the ongoing demand for well-managed holiday accommodation in France, ensures a ready market for leaseback resales, making it a compelling and potentially lucrative sector within the broader French property market.
As the outright owner of your French leaseback property, you retain the complete freedom to sell your French leaseback property at any point in time. A significant evolution in French law has made this process more straightforward. Previously, selling within the first 20 years could trigger a pro-rata repayment of the VAT initially refunded on the purchase. However, aligning with practices in other European nations, this requirement has been eliminated. You can now sell your leaseback property without the obligation of refunding any VAT. It’s crucial to understand, though, that the new buyer will be required to continue the existing leaseback arrangement.
Similar to any property sale in France, the disposal of your leaseback may be subject to French capital gains tax. If the sale occurs within the first 15 years of ownership, a tax rate of 28.1% may apply. However, a tapered relief system is in place, offering a 10% annual reduction in the taxable gain after the sixth year of ownership.
Understanding French Leaseback Properties
The French ‘leaseback’ system is a government-backed initiative designed to stimulate property development and investment in France’s rural and tourist regions. These developments are officially known as Résidences de Tourisme. Leaseback properties operate as short-term rentals within these designated tourist areas, contrasting with traditional buy-to-let properties that target long-term or permanent residents.
A key distinction lies in the contractual arrangement. With a leaseback property, you enter into a commercial lease agreement with a dedicated operator (gestionnaire), whereas buy-to-let investments involve no such intermediary. Furthermore, leaseback properties uniquely offer a refund of the Value Added Tax (VAT) on the purchase price, a benefit not available under buy-to-let schemes.
While leasebacks can present attractive long-term property investment opportunities, careful property selection is paramount to ensure the desired return on investment. Thorough due diligence on the professional competence and financial stability of the appointed operator is also essential. It’s important to note that Résidences de Tourisme are not typically suitable as permanent retirement homes, as the primary occupancy tends to be holidaymakers.
Leaseback properties are available across numerous regions of France, all offering the significant advantage of a VAT refund on the initial purchase. However, income tax reductions under the loi Bouvard scheme are only applicable in specific designated areas of the country. Seeking independent professional advice before investing in any leaseback development is strongly recommended.
The Landscape of the French Leaseback Market
The résidences de tourisme sector has experienced substantial growth over the past three decades, driven by France’s consistently high levels of tourism, attracting approximately 70 million visitors annually. These developments represent a hybrid model, blending the features of a hotel with furnished apartments, effectively providing serviced accommodation tailored for holiday use.
Currently, there are around 1,500 such developments across France, encompassing approximately 120,000 individual apartments and offering a total of 500,000 bed-spaces. Geographically, the majority of these are situated in coastal locations, with roughly a third located in popular skiing resorts, 17% in urban centers, and 8% in more rural countryside settings. Notably, developments within cities often cater to both the tourism and business communities, frequently featuring conference and related facilities. The market leader in this sector is Pierre et Vacances, accounting for approximately one-third of the total bed-spaces available.
The Operational Mechanics of Leaseback Properties
The creation of a résidences de tourisme involves a tripartite relationship between a property developer, a commercial operator, and individual investors. Typically, a developer constructs the accommodation, with a significant portion of the properties pre-sold to individual investors. These investors then enter into a commercial lease agreement (the leaseback) with an operator who will manage the property as a serviced accommodation.
The operator (gestionnaire) provides each investor with a guaranteed fixed rental income, typically around 4% per annum. The operator’s profitability is then derived from sub-letting the rooms and associated facilities to guests. Investors also usually retain the right to personal use of a flat or villa within the complex (though not necessarily their own specific unit) for a designated period each year. Generally, an association of investors (copropriétaires) is established to facilitate communication with the operator and address any collective concerns.
It’s important to distinguish résidences de tourisme from ‘villages de vacances’ (holiday villages), as the former primarily focus on offering serviced accommodation, while the latter represent complete holiday complexes owned and managed entirely by the operator. Operators within the résidences de tourisme sector have a professional association known as the Syndicat National des Résidences de Tourisme, although membership is not universal.
Contractual Framework for Leaseback Agreements
Your initial contractual engagement will be with the property developer for the purchase of an off-plan property. These contracts are legally termed Vente en l’Etat Futur d’Achèvement (VEFA). If the investment involves an existing development at least 15 years old undergoing renovation, the contract will be a Vente en Etat Futur de Rénovation (VEFR). Investing in a recently renovated development is also a possibility.
As part of the contractual obligations, the developer is required to provide contractual guarantees concerning the completion of the dwelling, as well as a ten-year building guarantee. It is strongly recommended that you engage your own independent notaire (French legal professional specializing in property) for these crucial contractual formalities. Further information on VEFA contracts can be found in resources detailing buying off-plan property in France.
Following the completion of the development (or concurrently with entering the build contract), you will need to establish a commercial lease agreement with the operator who will manage the complex for a minimum term of nine years. The tax advantages associated with leasebacks are contingent upon a commercial operator being in place within a short timeframe of completion and the ongoing maintenance of these arrangements. Specific regulations exist to address situations where the operator becomes bankrupt or terminates their lease agreement.
Tax Advantages Associated with Leaseback Investments
The tax benefits applicable to these developments are known under the umbrella term loi Bouvard. Notably, there are no geographical zoning limitations affecting the availability of tax concessions under this scheme, nor are there any restrictions on the level of rent charged. In addition to classified résidences de tourisme, these tax breaks also extend to investments in student accommodation and care homes for the elderly.
A significant advantage across all qualifying developments is the refund of the VAT paid on the acquisition and any associated works. For new developments, the VAT rate is typically 19.6%. For existing developments undergoing renovation, the VAT rate can range from 0% to 19.6%, depending on the specific circumstances of each case.
The tax break for qualifying investments is available for a period of nine years. For investments made in 2009, the rate was 25% per year. For investments made after this the tax exemption could not exceed 20% plus 8% of the total income per year for nine years. The maximum purchase price eligible for these concessions is €300,000.
Example: New Build Leaseback (VEFA)
If you are unable to fully utilize the tax concession within a single year, the remaining amount can typically be carried forward for up to six years.
