Investors welcome new French property law

Investors in Britain and Ireland have welcomed a new French law which, in effect, boosts substantially the value of leaseback properties for owners who decide to sell.

The leaseback scheme, a French Government incentive designed to encourage tourism, enables purchasers to buy a freehold apartment and then lease it back to an approved management company to let for an 11-year term. Prior to the introduction of the new law, the payment of VAT - currently 19.6 per cent - was waived but, if the property was sold prior to completion of the 11-year term, the vendor was obliged to pay a proportion of the VAT back to the state.

Under the new law - which gained little attention in the UK and Eire when it came into effect last year - and subsequent recent revisions, the investor is no longer required to repay any VAT at all when selling the apartment, even if he or she re-sells within the first five years of ownership. The only condition is that the residence must be ‘classified’ with an official tourism star rating.

Most residence de tourisme developments built by MGM, the leading developer in the French Alps, have four-star ratings.

Says Richard Deans, sales consultant in MGM’s London office. “The new law represents a significant and immediate increase in capital value for investors who are being attracted in increasing numbers once the scheme is explained to them.”

“Typically an investor who buys a two-bedroom apartment priced at €350,000 only pays €292,600 if he does so under the leaseback scheme, but the value of the property remains at €350,000 or more, as prices increase every year.”

Leaseback explained . . .

While some owners of MGM properties in the French Alps have bought outright and arrange lettings privately, the majority of new property in the region now is sold under the leaseback scheme.

Introduced by the French Government to make more properties available for the tourism industry, the scheme enables purchasers to buy a freehold apartment within a residence de tourisme - a residential development which generally incorporates an indoor pool, sauna and jacuzzi, as well as steam and fitness rooms - and then lease it back to an approved management company to let for an 11-year term.

MGM offers two leaseback options. They are ‘lease with rental income’ and ‘lease with price reduction.’ Key elements of the schemes are:

Lease with rental income
- The buyer pays no VAT (currently 19.6 per cent) on the purchase price.
- The buyer receives a guaranteed annual rental income (the amount varies according to development and the type of property).
- The owner retains three weeks use of the property each year.
Lease with price reduction
- The purchase price is reduced by 30 per cent. The discount consists of the non-payment of VAT (19.6 per cent) and a one-off lump sum equivalent to rental income paid in advance.
- The owner has six weeks use of the property each year.
- No rental income is received by the owner.

Under both options, owners can sell at any time and, at the end of the 11-year term, can choose to enter into a new lease agreement on mutually agreed terms or opt out of the scheme and retain full use of the property.

In a few resorts in the French Alps, where local authorities are worried about the shortage of rental properties, laws have been introduced making renewal of leaseback arrangements for a further seven years compulsory at the end of the initial 11-year term.

Purchasers of leaseback apartments say that attractions for them include the way in which the rental and management of the property is handled, and maid and laundry services are provided.

MGM says that the scope for capital growth is still considerable in the French Alps - typically between 5 per cent and 15 per cent per annum depending on location and demand - and there is no French capital gains tax if the property is sold after 15 years of ownership.

For more information about leaseback properties available in the French Alps, visit mgm-constructeur.com.