Anyone Negotiated On A Leaseback

A snowHead

Got my eye on one and considering (ok highely likely Shocked

) going to buy. Is all the pricing fixed or has anyone got pricing or terms altered?

A snowHead

I'd be interested in seeing how this thread goes. I'd guess like all property new builds it would depend on how well it is selling, whether you're going through a middleman (UK agency), how close the developer is to breaking ground, how good your French is etc.

Try a competing agent if you are going through one in the UK at the moment?

Well, the person's real but it's just a made up name, see?

Purchase price I would guess is negotiable to a point. On a new purchase I doubt if the developer will give much, if at all. But if it's a resale then I'd presume there is more room to negotiate. However if it's the original developer who is also doing the reselling of units, and therefore interested in controlling the resales versus the new sales, then it may be that the price they set for the resale is effectively fixed.

If anyone has a story to tell on negotiating terms on the leaseback element itself, then I too would be very interested as I'm looking into that market (but haven't yet ruled out the straight purchase and managed rental route either). For example, I've seen some developments where the owners use can be 5 weeks in winter but nothing during summer - has anyone managed to get that kind of deal personalised to their own requirements?

For what it's worth, this topic may get more responses if it is moved onto the 'Chalets and Apartments' forum.

Jon.

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My experience with chalet des neiges albeit not a discussion about price was a complete lack of flexibility

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We got no discussion at all on price or weeks, but can use the weeks we have in any season. Did however get the design changed quite significantly as it was not built yet and they thought our idea was a good one.

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When we looked, if you wanted five weeks, you didn't get very much return from it. It was cheaper to buy in a less popular resort, and rent it out yourself.

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dont do it

After all it is free

gwaelod, if you're looking at it purely for investment, don't want any freedom to use it when you want, and hope the property price rises, go ahead. IF you want somewhere to call home, use when you wish, make a bit of money to cover your expenses, buy somewhere outright. All the leasebacks I looked at appeared very expensive, even after vat refund,they were way more than ours cost us. Oh, and I got a brochure for the Flaine development last week, looks nice, but 38m2 is going to set you back 250,000 euros or thereabouts.
rolling eyes

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richmond, all of it.. if you want to buy a place buy a freehold.. own it by yourself for yourself..
on the matter of buying a place in the alps.. why would you want to spend a quarter of a million euros on a 38 sq meters for example .. so you can go back to the same place year after year.. what is the rental return on these places now less all the costs.. do you want to go to your 'own' pad knowing that its been trashed for the other 3 months of the season by holiday makers..250 k euros is 20 twelve point five thou, sking holidays all over the world .. i'd sooner do that than spend the next 10 years getting windows fixed an dpaying to have the driveway swept.. of course you do have the asset at the end of the day after interest payments and all that.. but is it really worth the hassle..?

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CANV CANVINGTON, that tends to be my view, although if I bought it would be to rent, rather than use. As you say, who wants to holiday in the same place every year (unless you have enough spare time and cash to holiday elsewhere as well)?

Still, if you can use the VAT for the deposit, and if (if) the rental covers the mortgage, it sounds like finding money in the street. Mind you, if it looks too good to be true, it is.

snow reports

What is the exact reson that you can claim back VAT? Is there a way to register your property as a business yourself and reclaim the VAT that way. Also is it possible to buy the property under a UK commercial mortgage if you set up a company to rent out that property on your behalf, the benefits of this would be obviously putting the property in a SIPP and thus claiming back the income tax.

this may be a way of claiming Income Tax back as well as VAT.

But I may be gettign highly confused here!

You know it makes sense.

rob@rar, unfortunately I don't have the time at the moment to spend that long skiing. In future, though, who knows?

plectrum, in France, some new builds of tourist accomodation attract a VAT rebate. The deal seems to be that you bung down a deposit of 17.5% (or whatever VAT on building is in France ,it may be more), take a mortgage for the balance (which can usually be arranged by the friendly property co flogging the place to you), sign a leaseback agreement, and claim the VAT back, which covers your deposit. Bingo. The rental income should cover the mortgage payment, everyone's a winner. You have to rent it out for a minimum period (11 years?); if you flog the place sooner, you have to give some or all of the VAT back, IIRC. You can keep a few weeks for yourself (and get less rent, obviously).

I think that's roughly how it works. No doubt there's a catch. There are service charges and I've read that resale prices tend to be disappointing, plus you're talking about French apartments, so if you're a keen cat swinger, forget it.

brian

richmond, the French mortgages I've looked at wouldn't allow you to use the VAT refund as a deposit. The maximum LTV is iirc, either 70% of the gross price, or 80% of the net price (after VAT rebate). In most leaseback schemes the developer does the VAT rebate claim for you and you just get a discount off the price, but with some you have to go through the bureaucracy yourself which can take a year or 2 I think.

plectrum, I don't think you can buy one as a business, in any case it's still a residential property even if you let it out.

A snowHead

brian, I'm fairly sure that when I looked at a couple of these wheezes, the idea was that the VAT refund would cover the deposit so that no capital was required. Most of those being offered were in low lying satellite villages; whether they will prove a good investment if global warming proves to be a long term reality, who knows?

A snowHead

Well, the person's real but it's just a made up name, see?

richmond, because there is nothing like opneing the door to your own apartment, opening the shutters, and looking out at the beautiful view. Low lying villages can also have a better summer market. I just didn't see the point in a leaseback, but you can use your weeks in other resorts I think. snowHead

brian, your experience with French mortgages is what I found too. We would have had to use our own funds as a deposit anyway. BTW, I didn't pay anywhere near 250k for mine.

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Helen Beaumont, much as I would likw to spend weeks and weeks each year in the Alps, that isn't going to happen in the foreseeable future. My only interest in buying in the Alps or anywhere else is to make money.

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We have bought outright for all the reasons stated. I'm not convinced the returns on a leaseback are particularly attractive. If you are just after rental potential then isnt it worth looking closer to home and finding the right location to do a buy to let? We've bought a ski appartment to use. If I was purely looking for an investment opportunity, I'm not sure I would choose a ski property at the moment...... Apart from anything there is so much adverse publicity about global warming etc.

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I fall into the CANV CANVINGTON and richmond school of thought.

Horses for courses though. snowHead

rob@rar, how come you get so much time off? Obviously, I'm being shamelessly nosey, so I'll understand if you tell me to mind my own or just ignore!

After all it is free

jayne durham, I think that tou're right about buying closer to home, although I can't pretend that if (if) we bought thorugh one of these 'get the VAT back' deals we wouldn't keppa week or two for ourselves. We bought a place in S.Italy a couple of years ago (not that close to home!) for sod all (although it's soaking up money like a sponge) which should be rented out this summer (it had better be), in the hope that it will prove a winner financially. We shall see.

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I've always found it hard to see the justification for leaseback for UK people (who don't get the tax advantages of the scheme which was designed for French owners). It's neither "your own front door" where you can (in our case) spend four months a year, welcome family and friends and leave all your ski gear, favourite books etc, nor a particular good investment. Time kept for yourself drops the return a lot - you might as well not bother, and just buy a week here and there wherever and whenever you fancy, and the snow is right etc. If I was contemplating a purchase purely "to make money" I would want to get some very definite actual figures from existing developments, resale, management costs etc. In our case, because we were fortunate with timing (109,000 euros for 40 square metres plus covered parking with the euro at 1.62 to the pound) our capital value has gone up a great deal in four years. There have been a number of interesting threads on leasebacks on Snowheads in the past few years. I recall one or two people who reckoned they had not done very well, but nobody who was over the moon about their purchase. Maybe I have selective recall....

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Helen Beaumont, I too got the brochure (more like a posh catalogue, hard covers and all) for the Flaine Montsoleil development. Two things put me off the phase on offer. The building is essentially north/south facing. The north facing units stare straight into a hillside, so no decent view at all and I'm guessing could be quite dark too. The south facing units have the sunshine and the views but also have the road between the existing two parts of Flaine close outside - noise issues from trucks etc.? Looks like the next phase to be released will be the best one.

VAT 'refund' My findings are that on a new purchase direct from the developer then it does seem in most (if not all) cases that the developer does the VAT reclaim, so purchaser just hands over the nett price.

If the original owner sells within 5 years (which probably covers most leaseback schemes to date) then the owner has to repay all VAT due on their original purchase price. The buyer, subject to continuing the leaseback arrangement, has to pay the current sale price including VAT @ 19.6% and then claim a refund of the VAT element on the price paid.

After 5 years a seperate process applies, where the owners VAT liability tapers down over 20 years, so sell up at 15 years old and you owe 25% of the VAT element to the Authorities. The buyer, again subject to continuing the leaseback arrangement, buys at the current sale price including VAT @ 4.89% and then reclaims that from the Authorities.

I've no idea how long the process of VAT reclaim may take - any offers of information?

Jon

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This may be a very silly question (and one I should know the answer to) but aren't ALL new builds free of VAT in France? Or did I dream that?

pam w, What are the tax advantages of leaseback for a French owner compared to a non-French owner?

An owner is subject to tax on the rental income but can offset expenses (including interest, property taxes, owners association fees and accountancy fees) against that - which in most cases probably results in a book loss, espcially as others are saying that the income doesn't cover their costs wink

Any tax due is then paid at 25% rate for the non-French or your marginal rate (between 0 and 40%?) if a French taxpayer. That seems to be broadly equal taxation to me for both French and non-French.

The second aspect is Capital Gains. From my readings on this it seems that for property then once the ownership period reaches five years then there is a tapering of CGT liability at 10% per annum, so no CGT liability at all after 15 years ownership, which I guess is a good incentive for anyone not to sell up within five years of buying any property in a rising market (leaseback or straight purchase). Tax rates seem to be a straight 27% (including a socail contributions elemnst of 11%) for French taxpayers, 16% for those who are non-French but EU resident and 3.3% for everyone else. I'm guessing that for the EU resident category you are also liable for CGT in your own country, but can offset the tax paid in France against this. So here I can see that a french taxpayer could be better off - but for an EU resident it's not a clear cut situation.

I haven't even started looking into Inheritance Tax aspects yet - they look to be scarily complex in France. Shocked

Of course I may have got this all wrong rolling eyes

, I'm a novice at this so far and am doing my own research before I go and pay a professional to work it all ot for me once I've found somewhere of interest.

Jon.

You know it makes sense.

pam w, the points of leaseback SFAICS are to take advantage of the VAT refund scheme and to ensure an income (which might of course be less than one could achieve 'privately'). These schemes are only obviously only approriate for people wanting to invest rather than to have a place in France to use themselves. For me, it would be an alternative to sticking money into a pension fund. If I can cover the deposit and mortgage with the VAT refund and leaseback inclome and show some profit on selling, why not (I realise that these may be big 'ifs')?

Otherwise you'll just go on seeing the one name:

richmond, maybe use a SIPP to buy a property. That's what I've done for the office I'm in now. It's good paying rent to oneself. Eat your heart out Gordon!

A snowHead

laundryman, SIPP is useful for commercial property but for residential property can only be used if the owner has no personal use of the place. Done specifically to exclude placing second homes into a SIPP and getting a tax break on that. If the residential property is a pure 'buy to let' then I belive it's OK to put into a SIPP.

richmond, I think you've hit the nail on the head there about the main point of leasebacks - investment potential, which as I see it is reliant on capital growth not operating income.

Jon.

brian

eng_ch, ours too, though we only have a paltry 52 m2 Sad

btw, the Intrawest leasebacks seem particularly poor given the rental income's not even fixed, which is half the point.

Well, the person's real but it's just a made up name, see?

The following is copy pasted from the very useful "Angloinfo.com" website.

Advantages of Leasebacks
The yield of 4 to 5.5 percent net of all costs represents a better return on investment than many conventional properties
Return on investment can be increased by using a mortgage to finance a leaseback investment. There are also tax advantages and deductions that apply when using a French mortgage to finance property
Many programs allow the purchaser to use the leaseback property at a discount
The 9 to 11 year guaranteed rental return with full management is ideal for the out of country investor
Disadvantages of Leasebacks
As the entire building is managed by the same company, a buyer is counting on that company to stay in business as long as they have the property. Check the company credentials before purchase or buy from a credible sales agent who has done this. Before agreeing to finance any leaseback property, French banks will investigate the management company so one can feel reasonably confident about the company if banks are willing to lend money to investors for the project.

Resale of a serviced, furnished leaseback apartment in a resort complex or student area is not as straightforward as the resale of a conventional apartment. The buyer population may not be as large
Selling a Leaseback
Leasebacks are structured as a long term investment. If an owner chooses to sell early there are some tax considerations to note:

In France, the capital gains tax on any secondary real estate property is reduced for every year of ownership ending up at zero after 15 years.
If an owner holds the property for at least 20 years, they keep all the VAT refunded. If a property is sold before this period, the French Government must be repaid 5 percent of the refund amount for every year under the 20 year period. This debt can be passed on to the buyer in some cases.
Financing a Leaseback
The paperwork and requirements to obtain a mortgage are fairly simple. It involves a multi-page application, plus a health questionnaire for the required life insurance. French banks do not use a credit bureau so expect to provide copies of personal financial papers such as pay slips (or company accounts if self-employed), taxes and bank account statements. While the applications are often in English, be prepared for the mortgage offer and all correspondence to be in French.

A critical consideration for French banks is the applicants "debt ratio". Monthly debt payments including the new mortgage cannot be more than one-third of regular monthly income. There are various rules to define what a debt is and what income is. Some banks will take into account future rental income if the apartment is being purchased for rental. The bank will not count income if it believes it will not continue throughout the duration of the loan, or any recent (therefore unproven) or unpredictable sources of income.

It is recommended to get pre-approved for borrowing before reserving a leaseback. Some mortgage brokers and banks will provide this service by telephone or internet, often free of charge.

Obligatory Life Insurance
Every bank in France will require that a life insurance policy is taken out specifically for the mortgage. The policy must be with a French life insurer for the exact amount of the mortgage and for the entire duration of the mortgage. The bank is the beneficiary. Once the mortgage is repaid, the policy can be cancelled. Life insurance for mortgages becomes very expensive for any mortgage that terminates after the applicant reaches the age of 75. Ideally a mortgage should finish by this date.

Depending on the amount borrowed, a blood test may be required and if borrowing above as set price, a full medical exam including urine test and ECG (electrocardiogram) is needed. There are free insurance medical centres throughout France able to process this quickly; it is also possible to have examinations done in another country however payment will have to be made upfront and be reimbursed later.

Borrowing Conditions
Financing can be obtained for up to 25 years at variable or fixed interest rates. The interest rate will depend on which leaseback program has been chosen (not every bank finances every program), the buyer's financial profile, the duration of the loan and the amount put down.

French banks will finance a maximum of 80 percent of the value of the property, with better interest rates being offered for 70 percent financing. Some banks will finance up to 100 percent however this is always combined with a required deposit into a French savings plan of at least 10 percent of the purchase price.

A buyer will need to open a French bank account from which mortgage payments can be debited. This can be done in person or from a distance if the buyer is unable to travel to France. It's recommended to select a bank able to provide service in English and accept to execute banking transactions by telephone, fax and e-mail instruction.

Making Payments
The first payment towards a leaseback purchase is the 5 percent deposit to hold a reservation. This is sent to the notaire's bank account at the time of reservation and counts towards the final closing costs. This is often the point at which the buyer pays the leaseback sales agent a commission. (A notaire is an official sanctioned by the French government to carry out transactions such as real estate sales according to law.)

The next payment is at completion of the sale, again to the notaire's bank account. The buyer will pay a down payment of 20 to 30 percent of the purchase price plus completion costs depending on how the mortgage is set up. The completion costs are approximately 5 percent of the purchase price and consist of title registry and taxes and the fee for the notaire. These fees are set by the French government.

Between the down payment and the mortgage, the developer is now assured that the funds for purchase are in place. The sale is complete and the buyer officially become the owner of the property under construction.

The bank will hold mortgage funds until the developer calls for the next stage payments. A typical stage payment schedule is:

Reservation – 5% due
Completion of foundation – 30% due
Completion of walls – 30% due
Waterproofing and air sealing – 20%
Ready for use – 15% due to arrive at 100% payment
A buyer can ask the bank to pay the developer directly as invoices are received. The bank will only charge interest on funds released. Further, almost all French banks will allow deferment of repayment of a mortgage until construction is complete and rental income starts. If this option is desired, a buyer should request it early in the mortgage process as it cannot be added once the offer has been issued.

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can i buy a hotel via leaseback? ROFL

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plectrum, you can buy hotel rooms via leaseback - seriously Crying or Very sad

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i looked at both leaseback and freehold and decided against Leaseback

main reason was that no one could give me a straight answer on what the resale market for leasebacks was and what sort of capital growth you could expect, they only talked about annual yields and tax breaks which unless you are french domicile are of dubious worth.

many of the "new" leasebacks in the three valleys lately are refurbished 20-25 year old complexes. Ask the question if major works have to be done on your complex who foots the bill for roof repairs, receptions etc, they say that the interiors and furnishing will be as new at the end of the lease but....

At the end of the 9 or 11 year lease what chance do you have to sell the property to a thrid party? my guess is that many owners when faced with large scale refurbishment bills sell back to the developers at poor returns.

"Has any snowheads bought and re sold a leaseback" may be a good thread.

After all it is free

I don't anything about French (or English) property law, but are 'freehold' and 'leaseback' mutually exclusive? I though that freehold/leasehold indicated whether or not you own the land or merely lease it form the freeholder and that leaseback indicated that having bought a proprty you lease it back to the seller. I assume that most leaseback arrangements will be with leasehold properties, but presumably that is not inevitable; is there any reason why you could not buy a freehold property such as a chalet and lease it back to the seller?

richmond, ISTR the FO were trying to negotiate something like that over the Falklands, until the Argies got the wrong end of the stick.

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laundryman, yes. I was thinking of something a bit more modest, an apartment perhaps, to start with, but I suppose if one could buy a small dependency, with the mineral tights for umpteen thousand miles in all directions, it might be attractive.

Help!!

Anyone Negotiated On A Leaseback

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