HI Guys,

what do you think the long term chances of selling studio leaseback properties are?
I have been talking to brokers in france about this matter and they feel they have good relsellability, however i am not convinced, anyone got any thoughts on this?

thanks for your reply, in advance.

Have you ever seen leaseback resales?

__________________

My main concern as I've said on the other thread about this is resales. Stay away from leasebacks and get your own city centre property where you can target young professional renters and you can rent all year round.

When the leaseback period ends you will have the problem that most of the other properties in the scheme will be for sale at the same time so there is bound to be a negative affect on prices. The national situation could be similar with so many leaseback properties coming onto the market.

Never believe anything agent says because their only concern is to sell the property and take your money. If they said they had concerns they would get sacked.

As Goldberg says have you or anyone else ever seen a leaseback resold. And as I said in the other thread the VAT is factored into the price anyway.

If you go for leaseback it should be in a development where locals are buying to live in (without the lease.) That gives you an increased possibility of selling further down the line without the lease. (If you don't do this house pruice inflation will likely be restricted for your property and be based on rental return. Owners will never be able to live there.)

Obviously there are some places in France that are more popular than others - the Cote d'Azur for instance, where there are many leaseback developments - some are good and some are bad.

In such places, there is more demand for holiday accomodation throughout the whole of the year. The more people staying in the property, the more the wear and tear, not only on the furnishings, but throughout the whole complex.

When you have lived in popuar holiday areas, you realise how badly some people behave. By owning a leaseback you do not know who will staying in your property, or how they will treat it.

On the other hand, if you were to invest and buy privately to rent out for holiday lets, you could be a bit more selective about your holiday tenants. You could probably increase your rental charges substantially, but of course you would have the responsibility of ensuring that someone was servicing and managing the property ready for new holiday arrivals, and to make the most out of the property throughout the whole year you would need to advertise.

Alternatively, buying to let on long term tenancies, gives you a regular steady rental income throughout the year. The tenant(s) would obviously be working locally, needing a home, and (hopefully) looking after your property as if it was theirs. Saying that, a good relationship between a landlord and tenant is extremely important.

Just one final point .... After living in a few rented places over 6 years,mainly in CDA, long term rental accomodation is hard to find. There are always people looking for long term lets. Find a suitable property in a convenient location and you should never be without tenants. Plus you'll have the benefit of an investment with increasing value.

Carole Bayliss
mortgagefrance

I have been researching leasebacks recently as Attika is opening in the Alps and the vast majority of new build properties offered there are on a leaseback scheme. They are, as you say, very popular with UK and Irish buyers as they provide hassle-free property ownership with typically 4-5% return on Investment and the added benefit of using the property for a few weeks per year.

I have outlined the negative sides of them below – most leaseback companies deny all of the negative sides but this has been gathered from French financial magazines and investment sites as well as talks with local developers.


The main thing that needs to be taken into account is the capital appreciation on properties.

-Unlike stocks and shares, the problem with property is that it takes time to sell. In the case of leasebacks, you are the owner from day one (unlike with a timeshare) and therefore can sell the property at any time you choose. However you would be selling the property with the remaining lease still in place and so the property could only be sold to another investor during this period meaning that the pool of buyers will be smaller as the new buyer must honour the remaining lease.

-Also, if you sell the property before the end of the lease, a proportion of the VAT would have to be refunded to the French Government (1/20 th of the VAT for every year until 20 years has expired.). Therefore a leaseback must only ever be seen as a long term investment.

-One problem with leasebacks noted in French Money Magazine is that at the end of the initial lease, all of the apartments in a development appear on the market at the same time thus reducing their value. This same magazine said that most investors are happy to get their money back from leasebacks and enjoy a few weeks per year holiday time in them – it did not rate them as an investment.

-Certain leasebacks are built in “regeneration” zones where the French government is hoping to boost the tourist economy. In my opinion, although the prices in these areas are very attractive, the risk is too high as you should always keep an eye on the resale potential. It cannot be certain that tourists will be attracted to these areas and you may thus never see any capital appreciation. When advising your clients, be very careful about the areas which are offered to you as a good investment – check that they are already successful tourist spots – many leaseback companies offer developments in all sorts of places where capital appreciation is unlikely – beware.

-At the end of the initial 9 or 11 year lease then French law dictates that unless you decide to live in the property or sell it, then the same rentor has to have first refusal on the property. This means that in many cases, you would never be able to use your property for personal rentals. You may also not have the right to live in it as it may be classed as a tourist residence only. The development has to remain in the classification of a Residence de Tourisme. The management company has rights under French law to retain their status, no matter what they say in any contract, and can claim compensation (copied from France Voila magazine).


- Many mortgage companies refuse to lend on leaseback properties – they fear that at the end of the lease, the property will NOT be returned in a good state even though this is promised in the contract with the management company. After all, if the holiday company decide that from the following year onwards they will not be using the development, why would they spend money on carrying out repairs and maintenance.?

I would however recommend, as have many others on this site, that you look into areas such as the Cote d'Azur where capital appreciation is first class and the rental market is very buoyant...you are certain to make money from your investment with none of the negative possibilities that you could encounter with a leaseback.

Claire Healy
Attika International

What I understand is that leasebacks are commercial leases and not freehold residential real estate stock, there is a limited market to this type of product and this will be reflected in resale price and what one can do with the property. Has anyone seen leaseback property be reconverted into normal freehold residential real estate.?

Nor me.

Good luck. Why not buy residential real estate with a guaranteed tenant in place and avoid all the possible problems with leaseback?

__________________

Thanks Attika, I wasn't aware of your point beneath.

"The development has to remain in the classification of a Residence de Tourisme. The management company has rights under French law to retain their status, no matter what they say in any contract, and can claim compensation (copied from France Voila magazine)."

Do you have any links to where I can read more on this law?

I had thought there was a good chance of being able to live / retire to property IF it was in a development where properties can be bought as leaseback or residential. (One such development was the Provence Country Club - think the last units were sold about 18 months ago.) I saw targetting such developments as striking a balance between being hassle free and having capital appreciation. (If price is higher for buying for residential use (no VAT refund) then presumbably identical neighbouring property would show similar appreciation IF it could be sold without any encumberances.)

Goldberg. Its a while since I looked at french leasebacks, but aren't they properties that are owned freehold with a commerical lease? Certainly agree with resale market being restrictive for capital appreciation and other points raised by Attika above.

Hi To All

A great thread, keep it going, but please abstain from adding promotional or sales posts.

Thanks
Carole

good points attika, thank you for your insight.

__________________