If fresh pain au chocolat and fine Bordeaux are not enough to tempt you into buying a property in France, a 20 per cent discount from the government might be.
UK investors have been piling into sale and leaseback schemes in France, which offer a generous tax break if you are willing to take a long-term view. Certain newly- built properties in popular areas of France, such as ski resorts and some parts of Provence, qualify for a refund of the VAT – TVA in French – which amounts to 19.6 per cent. Investors may also obtain VAT relief at a rate of 11-14 per cent on refurbished properties.
“There is a real tax incentive for UK investors which they will not get anywhere else,” says Mike Boles, head of international business at Savills Private Finance, the mortgage broker.
The sale and leaseback scheme was introduced in the 1970s by the French government to attract more privately-owned rental accommodation in tourist hotspots. The way it works is that you buy the freehold of a new- build property, usually an apartment, and lease it back to a management agent who will give you a guaranteed rental return and take responsibility for letting out and maintaining the property.
The initial cost of the property will include VAT but on completion of the sale and leaseback deal the French government will refund this to you.
You can also elect to keep the property for personal use for a certain number of weeks per year – usually between one and six weeks. The number of weeks for personal use will determine your rental return.
Boles says investors can generally expect a return of around 4 per cent if they just want to use the property for one week, which could reduce to around 3.6 per cent if they want it for, say, three weeks.
He says a number of smaller agencies set up to take advantage of the sale and leaseback scheme might try to entice investors with higher headline rental rates. But he warns that these should be approached with caution: “Some companies are offering higher rates, maybe 6 per cent, but you would have to question the sustainability of these,” he says.
As with all generous tax breaks, there are some drawbacks to these schemes. One potential deterrent is that to qualify for the VAT relief you have to sign up for a leaseback agreement on the property for 20 years. The average lease is between nine and 11 years but if you decide to end the agreement after this you will have to give back half of the tax refund you initially received.
You therefore have to be prepared to hand over control of your property for the 20-year period. You should, however, have some freedom to change the number of weeks you want for personal use and when you want them.
Experts also advise that you should choose an experienced management agent who has a good track record of maintaining properties and fulfilling the rental promises. “The rental guarantees are only as strong as the company behind them,” says Boles.
Some of the better-known developers, such as Intrawest, the Canadian operator, Maisons de Biarritz, Pierre et Vacances and Lagrange, have their own management agencies or tie-ups with reputable companies.
Another potential hurdle comes after the 20-year lease has ended. Boles says that questions surrounding the secondary market of these properties remain unanswered. If a flood of properties comes on to the market at the same time, they could be difficult to sell. Likewise if your property has not been well maintained you could struggle to find a buyer.
But such fears are not quashing investor appetite for these schemes. Savills says that one development in the Monchavin ski resort, near La Plagne in the Alps, which it marketed to UK investors last month, sold out within two weeks. The block – comprising around 65 apartments – will not even be completed until 2008.
Propertyabroad.com, which specialises in overseas sales, has between eight and 10 new sale and leaseback developments on its site each month. Les Calvert, director, says it offers properties from £33,000 – for a studio apartment in Lille – right up to £525,000, which would get you a four-star ski chalet, with use of a sauna and jacuzzi, in the Chamonix valley.
Calvert says there is a growing trend among UK first-time buyers to buy in France as they cannot afford to get on the property ladder at home. Local mortgage providers in France have become more flexible – many now offer 80 per cent loan-to-value – and interest rates are lower than in the UK.
