Buying in France


Bonjour, madame, monsieur French sale and leaseback is one investment option that can


offer clients good yields and excellent potential for strong capital growth — while also offering brokers a crucial additional revenue stream


by


Nick Leach, head of Pierre & Vacances Property


Investments, UK & Ireland


The mortgage market has changed beyond recognition in the past three years and brokers are having to change with it. Yes, things have improved tenfold since the dark days post-Lehman, but the impact of October Spending Review is looming ominously and still cautious consumers could retreat further into their shells. The mini property market boom of the second half of 2009 and early 2010, when buyers returned to market, already seems a long time ago, and with the widespread view that property prices are on their way south again, the UK property market is a difficult beast to predict. In this new uncertain world, many brokers are branching out into new areas, diversifying their propositions and developing new revenue channels so that they don’t have to rely on their one traditional source of income. Hard words, maybe, but it really has become a case of adapt or die.


At the same time, many of your clients


are looking for new areas to invest their money. But knowing where to invest in the current climate has become a lot harder, too. Global stockmarkets remain volatile at best, while UK property prices are predicted by many to fall further over the course of the next 12 months, raising doubts about the potential of domestic property investment.


As for those clients investing for their retirement, traditional pension funds have


fallen from grace. A lot of people want to save and invest but they don’t know where to turn. There seem to be relatively few safe havens that offer solid returns. There is, however, one investment option that offers clients good yields and excellent potential for strong capital growth — while also offering brokers a crucial additional revenue stream. It is called French sale and leaseback.


What is leaseBack? In France, the sale and leaseback concept has existed since the 70s and has become a stable part of many French people’s investment portfolios, either as a pension complement or as a pension substitute. It is mostly sold by IFAs, banks and pension funds instead of more traditional real estate channels. The idea of leaseback was conceived by the French government as an incentive to encourage investment in tourism property, as France was, and remains, the most visited country in the world with around 83 million tourists each year. With leaseback schemes, the VAT on


the purchase price of the property (19.6% for new build property) is refunded and a single management company manages the property in return for a guaranteed rental income for a minimum 9-year period with no running or maintenance costs. When bought correctly, good leaseback property investments can provide excellent returns and, in the long-term, very good capital growth. The French government continues to support these property investments, as construction and tourism are massive French industries. President Sarkozy’s recent introduction of legislation offering


40 mortgage introducer NOVEMBER 2010


further income tax benefits to French tax residents who invest in these properties has given this particular sector of the French property market a significant boost.


Not only do leaseback properties offer a


Euro-based investment in Europe’s most stable property market underpinned by the world’s busiest tourism market but they also provide guaranteed returns, a completely hands-off management package and excellent prospects for capital growth — with no exposure to occupancy risk or property market conditions.


Why France? The French property market, which has not been blighted by over-development or poor internal infrastructure, has performed and recovered surprisingly well against a backdrop of global economic chaos. The French economy has proven more


robust than some of its international counterparts and was one of the first European economies to emerge from recession. Compared to, for example, the UK, its dependence on, and sensitivity to, the financial services sector was significantly less and so it was able to bounce back quicker.


Also, in stark contrast to the UK, mortgage finance up to 104% is still available through French lenders, and there are some extremely attractive mortgage deals on offer at the moment, especially fixed rate deals which are at historic low levels.


typical returns With rental guarantees up to 4.5% and mortgage interest rates starting as low


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