Until recently Leaseback investment in Provence Cote d’Azur was synonym of low rental income (2.5 to 3%). With the current worldwide crisis, several customers decided to postpone their purchase because they don’t know what is going to happen in the next few months. In order to continue selling their developments, French property developers have already taken action by reducing the price of their Leaseback developments. These measures increase the Return on Investment for the investor. For example you can find a Holiday Leaseback in the Luberon (part of Provence) with a yield up to 5.30% for a pure investment.
Buying a leaseback in France has always been a safe investment because the French property market had a moderate capital growth during the last 10 years, compared to other countries such as the UK, Ireland or Spain.
By signing for a French leaseback scheme, the buyer becomes the freehold owner of a furnished property. The length of the leaseback is usually between 9 and 11 years (renewable). The buyer will get a fixed rental income normally linked to the inflation rate: Every 3 years there will be a rent review according to the construction price cost (INSEE Index of Construction Cost). The rent will be pay by the property management company whether it is occupied or not. Furthermore the management company will deal with all the repairing work, refurbishment, bills and so on. This is the reason why the percentage can only be up to 5% of the cost of the property. The yield has to be understood as net yield and not before repairing costs etc.
VAT
Buying a French leaseback property entitled the buyer to get the VAT back (19.6% in France). It can be paid and reclaimed by the developer. If the buyer does it by himself, it can take up to 6 months to get the VAT back. Most of the time the developer will provide assistance to reclaim the VAT. In order to get a full VAT refund you will need to rent out your property for at least 20 years. You can also decide to do a leaseback of only 9 years, in that case you will repay 11/20ths of the amount of the VAT.
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