New homes - Buying off plan

For some people, the idea of owning a home in the South of France conjures up the image of rambling stone cottage in Provence or on the Riviera. For these people, the thought of doing renovation works and paying for ongoing maintenance comes with the territory and actually adds to the charm.

Many others however, are looking for a hassle free purchase, a safe investment property which needs little or no work. Whether buying purely as an investment or looking for a holiday home, a growing number of overseas buyers opt for a new build development of villas or apartments.

There are many advantages to buying newly built property. As well as the fact that the property will be brand new and pristine when delivered, there are also builders’ guarantees for 10 years, you pay reduced notaires fees and you are also exempt from paying some local taxes etc for the first two years.

Many developments are marketed weeks or months before construction works begin, and properties are available to buy “Off-plan”. Purchasing off-plan (or pre-construction) is when a buyer commits to a purchase from architects drawings before building work has commenced. Buyers who are prepared to move quickly pre-construction will find that they are more likely to be able to secure the plot of their choice and have more input in the layout and finishing of the property. Not to mention that as building work starts and the development progresses, prices for subsequent homes are usually adjusted upwards – a satisfying outcome for purchasers.

Aside from all the benefits however, it is important to buy through a reputable company. A bank guarantee is required by law to be in place to protect the clients funds, this means that in the unlikely event that the project does not reach completion, all monies are returned to the purchasers – plus interest.

The South of France has a large range of developments available, under construction or planned for the near future ranging from studio apartments to state of the art villas. A particularly interesting investment scheme which is extremely popular with the overseas buyer is the “Leaseback scheme”.











This unique, government backed scheme enables people to afford to buy their dream holiday home or investment property in France and to cover most or all of the mortgage costs with a guaranteed rental income (typically 3-6%). An established management or holiday company will rent out your property on your behalf for typically 9 years and they will be responsible for the upkeep of the property.

You do not have to pay VAT on the property which saves you the 19.6% charge that normally applies to all new property - a nice discount!

As the owner of a leaseback property, you usually have use of the property for holidays for a few weeks of the year if you wish (there is usually a choice – check each individual scheme).

As well as the guaranteed rental income and tax benefits, there is also the added bonus of getting the property fully furnished and fitted with kitchen and bathroom appliances, knowing that your property is not left empty and unattended for weeks or months at a time and that the maintenance is paid for by someone else! Too good to be true? Well there is only a limited amount of property available at any time under this scheme - that is the catch!

The majority of people who own holiday homes in France, only actually live in them for a few weeks of the year. In addition, French inheritance laws mean that many properties are owned by many family members who cannot agree what to do with the property - this also leaves many properties empty. This is why the French government has introduced 'Residence de Tourisme', or 'Leaseback' schemes to try and increase the quantity of holiday accommodation available in tourist hot-spots in order to cater for more tourists and increase the tourist revenues of France!

Basically you get a holiday home you own, usually with use of it for several weeks of the year with a fixed rental income guaranteed for the rest of the year and a discount to market value of the property represented by a 19.6% VAT refund on the whole property from the French government. (All new property has VAT in the total price; this refund represents a 16.4% discount to market value).

How It All Works

Some new properties for sale in France have negotiated a 'Residence de Tourisme' status. This means that a purchaser can buy the freehold of the property with or without a mortgage and then lease it back to the developer or a rentals company for a pre-determined period (usually around 9 years) at a fixed rental. At the end of the lease period, the property will be returned to the owner in perfect condition. Most of these properties include pools which can be accessed free of charge. Other facilities that a development may have, such as a gym, may be charged for. During the 'off-season' periods, although the property can be used, the extra facilities may not be available.





Each property purchased in this way usually has options for the purchaser to make use of the property for a few weeks of the year at no cost. Each development has its own definition of Very High, High and Low season. At the time of your purchase you would define how many weeks of each period you would like to keep for your own use, normally from zero to six weeks depending on the scheme. The owner of each property has first choice of which weeks to spend at the property, and would be sent a form at the beginning of each year to request their preferred weeks.

In order for the rentals company to guarantee the rent for 9 years it is vital that the development is in a high demand location with good facilities - the same attributes that tend to drive a good capital gain in a property!

French Property Leasebacks F.A.Q
These are general questions regarding leasebacks and the answers will vary slightly between each individual scheme.

Where are Leaseback properties available? Leaseback properties are available in many parts of France, including the Alps, Cote D'Azur, Languedoc and the Aquitaine region. The locations of leaseback properties vary, but often they are built in and around alpine/skiing, coastal or golf/sporting areas.How many Leaseback properties can I own? As many as you like. You do not have to be a French (or even an EU) resident.

What's the difference between a leaseback scheme and a time-share?
When you purchase a time-share, all you are getting are specific periods of time which you can use within certain locations over a set number of years. Once the term comes to an end, you are left with nothing. With a leaseback scheme, you are the actual freehold owner of the property and have simply entered into a 9-year or so lease agreement. After this agreement ends, the property is still yours to do with as you wish within certain rules. The only thing in common with both schemes is that you only have specific times you can use the property during the 9 years.

What happens if I have to sell the property before the end of the leaseback term?

As the freeholder of the property, you can sell it at any time. However, you would have to take into consideration that you would be selling the property with the residue of the lease term in place for the new buyer, and whatever period was remaining on the lease would have to be reflected in the sale price and also a proportion of the VAT discount would have to be refunded to the Government.

Who will look after my property during the leaseback period?

The management company looks after all of the properties on the development and, because of the high standards required, all properties and their grounds are maintained during the 9 year period.




Who is responsible for paying all the bills during the leaseback period?
All the utility bills are paid for by the management company who are also responsible for the upkeep and general maintenance of the property during the term. The local “Taxe foncière” (local rates) would be the responsibility of you, the owner. No “Taxe foncière” is due on new properties for the first 2 years.
What type of finance is available?
Leaseback property purchases are normally financed on a repayment mortgage basis rather than interest-only, over either 15 or 20 years. As a non-resident in a good financial position you could expect to qualify for 75% - 80% loan-to-value.

Why is there a discount on the purchase price?
The French government has given tax breaks to developers in order to encourage them to build “Residence de Tourisme” developments. This discount or VAT refund is passed on to purchasers to act as an incentive to get them involved in the scheme. There is a great shortage of holiday accommodation in the summer and France earns a lot of its' Gross National Product from tourism.

When I book my preferred week, will I be able to live in my own property?
As long as you have booked on time, you will usually be able to live in your own property. If you are late in booking, it may have to be another similar property.

What happens if I can't use all my allocated weeks?
Owners often arrange to sub-let the property, although you would have to do this privately. Some leases restrict this.

What happens if I wish to use more than my allocated weeks?
Generally you would get a discounted rate on any extra weeks you required over and above those allocated to you.

Can I use the property during the off-seasons?
Yes, but a small administration fee will be charged or a discount given on the price list from the rentals company.
Is my rental income guaranteed?
The rental income is guaranteed throughout the period and is usually paid quarterly in arrears. The rent is not guaranteed by the French government, it is usually paid by large holiday companies with substantial numbers of clients and assets. Your return is evaluated each year and can potentially increase. The worst case scenario is that you always get your original guaranteed return.








What happens when the Leaseback period comes to an end?

The lease will not automatically renew when it expires, unless this is stated in your contract. According to French law, unless you choose to live in it or are selling the property, then at the end of the lease, you have to initially try and renegotiate with the same management company, as they have first refusal on a new letting contract. This normally occurs 6 to 12 months before the end of the lease. Generally the easiest and most common decision is to sign a new commercial lease with the management company as the benefits of the scheme will still outweigh the inconvenience of letting it yourself. Alternatively you can sell it, live in it yourself or rent it out privately. Bear in mind that this may result in you having to pay some of your VAT refund back to the government, if it is less than 20 years since your original purchase of the property. If you decide to live in the property yourself or rent it out privately you will also be responsible for paying management fees to a new management company.How long have leaseback schemes operated in France?
Leaseback schemes have operated successfully for more than twenty years in France.
Is the lease always for nine years? No, although nine years is the most common period, the leaseback companies can ask for any period from nine years (the minimum) upwards. Another common length for a lease is 11 years or even 15 years. Do I have to buy the property furnished? Yes. All leaseback properties are sold fully furnished and equipped ready for letting. You become the owner of the furniture at the end of the lease. It is not uncommon for the price of the furniture not to be included in the purchase price, so you should check the terms of the individual development.Are leaseback properties always new builds? Generally, most leaseback schemes involve newly built apartments, although some major renovations or refurbishments can be included in the scheme. The scheme allows a full VAT refund if the development is brand new but in the cases of refurbishment or renovations, the amount of the VAT refund is substantially lower. It is generally proportional to the amount of renovation/refurbishment that has taken place. (Please note that Notaire fees will be up to 5% higher if the development is not new).

Do I pay interest on a mortgage on a leaseback as stage payments are made?

As leaseback properties are usually bought off plan 12-24 months before they are complete, do I have to pay the mortgage repayments while it's being built - before I receive any income? There are French mortgage companies who offer a grace period called "franchise" during the construction of the property. This arrangement lets you defer the full mortgage repayments during the build; you only pay the life insurance and a very small percentage of interest on the amount of money which has not yet been transferred to the developer. This usually works out at around €40 - €100 per month depending on the purchase price. It is easy to see that for investments or investments with holiday use the leaseback scheme is a very appealing choice.
What are the other fees in a purchase? Notaires fees are 2-3% for a new property, up to 7-8% on refurbished. How do I get back the VAT on the property? This will depend on the leaseback management company. Some will absorb the cost, charge you less and get the refund themselves; others can take a year or longer to claim your VAT back for you ( this will usually be done by the management company for you)Do I have to pay Capital Gains Tax if I resell? Yes, unless you keep the property for at least 22 years. French Capital Gains Tax starts at 25% for residents and 33% for non-residents. It reduces after 5 years until it is zero after 22 years. Tax is payable on the gain less Notaire fees, agency fees and costs of major work carried out. Can I use a company to buy a leaseback property? It can be possible to buy a leaseback property through a UK, French or offshore company. However, some developers may have restrictions on this and you would need to get specialist legal and tax advice.

More Information:
Home Hunts, the Property search specialists have a team of consultants based throughout the South of France who are available to offer advice and assistance through the French buying process. They work will all of the best selling agents, builders and developers in Southern France and have access to the whole marketplace. They can help you to buy ANY property in the South of France – from the Brand new to the ancient! For more information, visit their website – http://www.home-hunts.com/ send them an email info@home-hunts.com or call their office – 0870 44 66 43