A leaseback means that the property is sold and leased back to the developer or a letting agent working with the developer. French law is designed to encourage the proliferation of letting properties to allow a claw back of the 19.6% purchase tax that is due on any new build. This is offset against the purchase tax paid by those renting the property from the letting agent and over a period of 20 years will match the 19.6% saved.

The normal length of contract that has to be established with the letting agent is of 9 years. To qualify for the leaseback purchase tax claw back, the property has to be let out for a minimum qualifying 4 weeks a year. But in the case of leaseback schemes with guaranteed returns, the letting agent usually has the property for the bulk of the year, the owner having it's use for 0 - 6 weeks depending on the scheme.

If the property is sold before the end of the leaseback period, the outstanding balance of purchase tax would be payable on sale. . In many cases if you were to buy on a leaseback basis, the furnishing kit is included in the price, including indoor and outdoor furniture. This is to ensure the standardisation and quality of the properties that the company is letting. (And it also saves you the task of doing it yourself!).

 

Example Initial cost:
€90,400 plus €4,600 Euros for the furniture pack = €95,000 Euros VAT @ 19.6% (taken off the initial price if you buy with the leaseback option) = €14,814.72 Euros Therefore price if you take out the leaseback option = €75,585.28 Euros (€90,400 divided by 1.196) Then add back on the furniture pack, €4,600 Euros Total sum you would pay = €80,185.28 Euros. NB Notaire's fees will be 2-3%, based on the full price (excluding furniture and including tax), therefore at 3% of 90,400 Euros = 2,712 Euros. The notaire's fees on leaseback or any new build are only about 2-3% as there is no transfer tax (as opposed to 7-8% normally as transfer tax is 5%). Allow a margin of 1%+ to allow for the registering of a mortgage charge on the property.

Other costs:
Insurance - very reasonable here in France and one insurance policy covers buildings, contents and public liability. Maintenance - expect to see annual charges at around 20 - 30 Euros per square metre of habitable space (ie not including the garden). From third year on, French property owners' tax (taxe fonciere) which varies from region to region.

Returns on Investment:
With leaseback there is a guaranteed annual return that is usually in the 4% -7% range, depending on the amount of weeks that the owner occupies the property. 0% owner occupancy obviously gives the highest rental return. The rental income rises each year in line with a special French Cost of Construction index and is capped at 2% pa.

The Leaseback Scheme is not timeshare - the property is 100% yours.