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France is in the midst of major economic reform to transform the country from a fairly expensive and inflexible one into one where foreign investors are keen to place their money; as a direct result of the ongoing reforms the unique French property leaseback scheme is now proving even more attractive to those looking for French investment property.
The leaseback scheme allows buyers to purchase a property freehold, benefit from guaranteed rental income from that property for a given period, have personal use of the property sometimes and of course enjoy all the capital gains made on the original investment; and with France poised to enter a period of economic improvement the capital gains achievable may well be significant making the scheme very popular currently.
Originally started some 20 years ago the French investment property leaseback scheme or ‘Residence de Tourisme’ was created to increase the numbers of properties available to let out to tourists in the most popular holiday hotspots. This would allow for growth in the tourism sector which would in turn boost the economy. Nowadays with the French more committed than ever to reducing tax rates and improving their economy over the medium to long term the country is a very good bet for those looking for long term growth on their property investments. Properties bought and held under the leaseback scheme should really be held for at least 20 years to get the greatest gains from the property and they therefore tie in well with the predicted period of French economic growth.
The leaseback scheme often sounds too good
to be true, and there’s no denying the massive benefits
offered under the terms of the scheme - but it does have a
few flaws! On the positive side a person can purchase a qualifying
property in France free of VAT which gives a discount to market
value in excess of 16%.
The properties offered for sale under the
scheme give a guaranteed rental income of between 3 and 7%
of the property’s value annually, an owner can usually
book up to 6 weeks of personal time in the property, the properties
available can be bought on mortgage with the rental income
counting towards the payments and the amount available to
borrow with many lenders.
Properties are sold fully fitted and furnished,
they are maintained and when the guaranteed rental period
- which is usually 9 years - is up, properties have to be
handed back to the owner in perfect condition.
Sounds good so far? Well, yes - however only
a certain number of these types of property come onto the
market each year, and as you can imagine they are soon bought
up! Furthermore, as mentioned, you should plan on holding
the property for the longer term in order to make the best
gains on it.
But as the French economy improves, inward
investment is encouraged, unemployment drops and the country
becomes more affluent and attractive to more people so property
prices will naturally rise and so will rental rates chargeable.
All this should make for a prolonged period of improving income
and underlying property value which is why more investors
than ever are considering the leaseback scheme.
And if you’re considering adding a French
investment property to your overall portfolio and you don’t
plan on holidaying in the property you buy for more than six
weeks a year the French property leaseback scheme may well
be worth your further attention.
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