Buying a property on a leaseback basis explained

A new eight-page guide to the purchase of a French property on a leaseback basis has been published in English

A new eight-page guide to the purchase of a French property on a leaseback basis has been published in English by one of the country’s leading developers, MGM French Properties.

Leaseback is an incentive scheme, introduced by the French government, to encourage the purchase of holiday homes which are then made available for renting by visitors in areas where more tourist accommodation is needed. For property buyers, the arrangement offers the dual benefit of ownership of a holiday home for their own use and a guaranteed rental income.

Leaseback properties are particularly popular in the ski resorts of the French Alps – many of which attract summer visitors – where MGM sells fully-furnished and equipped apartments within résidences de tourisme. Typically they incorporate facilities like a pool, gym and spa. The price paid for the freehold property is reduced by one-sixth as French VAT at 20% is waived under the leaseback scheme.

Among topics covered in MGM’s leaseback guide are:

What is leaseback?

A French government incentive scheme encouraging the purchase of holiday homes, which are then made available for renting by visitors in areas where more tourist accommodation is needed.

MGM’s leaseback properties:

These are fully-furnished and equipped apartments within a résidence de tourisme, typically incorporating facilities like a pool, gym and spa. The buyer owns the freehold of the apartment which is leased back to CGH, the MGM Group company which handles lettings and management for owners (see below) during an 11-year period. This can be extended to 20 years to avoid repayment of a proportion of the VAT waived at the time of purchase (see below).

Leaseback properties – an investment or a lifestyle purchase?

Most MGM clients perceive them as lifestyle purchases which are good long-term investments.

Lifestyle purchase:

MGM’s leaseback properties usually occupy stunning locations. All come with a high quality finish, top quality service and excellent leisure facilities.

Long term investment:

After deduction of management and maintenance costs, net annual rental income – which is guaranteed and paid twice a year – generally is little more than 1% of the purchase price but the capital value of the property can be expected to rise in the long term.

Other financial benefits?

The price paid for the property is immediately reduced by one-sixth as French VAT at 20% is waived under the leaseback scheme.

Off-plan purchase:

When buying off-plan, purchasers pay a deposit of 5% on reservation then six stage payments, ranging from 30% when the foundations of the building are completed to 5% on handover.

Purchase costs:

Buyers need to budget for:

?Notaire fees and stamp duty which together add about 2.5% to the purchase price.

?English-speaking lawyer’s fee – on average between €2,000 and €2,500 depending on the price of the property.

?Mortgage costs – if arranged through a French bank, taxes and fees equivalent to 2.5% of the mortgage amount will be payable.

Running costs:

CGH will pay all insurance and utility bills but owners need to make allowance for:

?Local property tax (taxe foncière)

?A share of the annual cost of maintenance of the building, gardens and pool, as well as buildings insurance, typically based on around €30 per square metre.

Private use:

Owners can use their apartment for between three and six weeks each year – spread across the high, medium and low seasons – on the terms agreed at the time of purchase. In addition they can occupy their property free of charge for an extra 28 days a year in the periods when the résidence facilities are closed for annual maintenance.

Swaps:

Owners can exchange the occupancy of their own apartment with a stay in a comparable one managed by CGH – for details visit www.cgh-residences.com

To obtain your copy of MGM’s leaseback guide

Copies of the free detailed guide – which includes the answers to frequently-asked questions on topics such as purchase costs, mortgages, lease terms and management charges – are available on request from MGM’s UK sales office in London’s West End at Swan House, 17 – 19 Stratford Place, W1C 1BQ, telephone 0207 4940706, email [email protected]