French Leasebacks - My tuppence worth

I've been doing a bit of research into this area, aided in no small part by some of the threads here.

Despite the scheme's apparent attractiveness, I can't get away from the feeling that the properties you're being asked to buy are nothing more than glorified hotel rooms and that will ultimately be what you're left with. They're not places that you could sell or rent to anyone intersted in living in them in the long term. In other words, your only potential market should you decide not to renew your agreement with the holiday company, would be other people who WOULD like an agreement with the same holiday company.

I know that several figures have been quouted on the rates with which French property has increased in recent years, but does it really apply to these places? Has anyone succesfully sold one of these at a profit in recent years?

I'm coming to the view that more regular property with a reasonable income stream and capacity for long-term growth potential would be a better bet.

Anyone any views?

The same old question keeps coming up here - does anyone know of ANYONE who has actually sold one of these and come away happy. Every few months I see another article on these and think to myself it would be lovely to have one near Cannes or beside the ski slopes but I've never heard of anyone who has actually sold one and made a profit. And in spite of what some people say these have been around long enough at this stage for some people to have sold - that's if they can.

MAC

I must have read all of the leaseback articles in the papers and come to conclusion now they are a total waste of time unless you would like to hang on them as holiday homes.

"they are a total waste of time unless you would like to hang on them as holiday homes"

My thoughts exactly. And if you keep them as holiday homes, capital appreciation isn't really an issue. So as a pure investment, they're not as good value as they might first appear.

Hi Doodle

>> 'I can't get away from the feeling that the properties you're being asked to buy are nothing more than glorified hotel rooms and that will ultimately be what you're left with. They're not places that you could sell or rent to anyone intersted in living in them in the long term'

Buyer beware. It is the responsibility of the buyer to be aware of what she/he is buying. If you're unsure, I advise that you travel to and look at what you're buying prior to completion. Each development is different. If you want a spacious leaseback apartment in a good urban area then that is what you can buy. On the other hand if you're looking for a small leaseback unit in a business area that is rented to business people for overnigh stays then you can also find that. You will generally find what you're looking for. Of course the price will also vary based on size and location and so you will need to factor that into your budget.

>> 'In other words, your only potential market should you decide not to renew your agreement with the holiday company, would be other people who WOULD like an agreement with the same holiday company'

Why? You have a number of choices. Re-lease to the same management company, lease to another management company, rent and manage directly, sell, live in it, ... A number of observations on this issue have previously been posted on this forum.

>> 'I know that several figures have been quouted on the rates with which French property has increased in recent years, but does it really apply to these places?'

The figures you refer to are generally market indicators i.e. property prices in x have increased by y%. Of course these are market averages and don't necessarly mean that each property in each region increased at this same rate. If you pick your areas carefully you can attempt to ensure good future appreciation and rentability. Previous posts on this forum have addressed many of the points around appreciation of leaseback units.

>> 'Has anyone succesfully sold one of these at a profit in recent years?'

If you're asking if any Irish person has sold at a profit recently then I would think you will find it difficult to locate such a person as leasebacks have only in the past few years made it onto the Irish overseas market. If you're asking if any person has made a profit on leasebacks then the answer is yes. You may need to brush up on your French to speak to such people. You generally see resales being sold as 'classic properties' (i.e. with no lease) by local agents.

>> 'I'm coming to the view that more regular property with a reasonable income stream and capacity for long-term growth potential would be a better bet'.

Chalk and cheese. Leasebacks = long-term investment, guaranteed rental, passive (i.e. arms length) involvement. Non-leaseback = medium term investment, non-guaranteed rental (but potentially higher than that offered by leasebacks), active involvement. An investor should pick whichever suits her/his needs.

>> 'Every few months I see another article on these and think to myself it would be lovely to have one near Cannes or beside the ski slopes but I've never heard of anyone who has actually sold one and made a profit. '

Perhaps you may need to actively look at talking to the correct audience. An idea may be to join a French speaking property investment forum.

>> 'I must have read all of the leaseback articles in the papers and come to conclusion now they are a total waste of time unless you would like to hang on them as holiday homes'.

and

>> 'And if you keep them as holiday homes, capital appreciation isn't really an issue. So as a pure investment, they're not as good value as they might first appear.'

Not sure what logic these statements are based on? Perhaps if you expand on the statements, others can get involved in discussing, addressing and learning from your views. I would have thought that for most people capital appreciation is an issue (regardless of whether it is a holiday home or not. Negative equity is not very pleasant.).

Leasebacks will suit the investment profile of some investors but not others.

Regards,
Paidi

have you invested in a leaseback yourself?

I recently acquired a property in a Paris leaseback and find it a good investment. The property is about 56 square metre small but liveable.
I get a 19.6% VAT refund from the French goverment.
I can get a mortgage of 80% net (95% after the VAT refund) at 3.4%.
There is a guaranteed return of 5.1%.
Leasebacks are a long term investment and I believe in 20 years I will see a nice profit of this property which is self financing.

i see your leaseback is in paris, as opposed to the arsehole of nowhere places that a lot of companies are selling over here. you will always have a ready supply of tenants or at worst, you can hop on 1 of 10 flights a day from dublin and use it yourself.

Can you provide details of the agencies you used to acquire your property in Paris??

FPI.ie (french property Ireland)

Carriglee said:

If you want a spacious leaseback apartment in a good urban area then that is what you can buy.

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I'd be intersted in any links you had to such places. The ones I've seen are either small urban develpments aimed at students or the travelling businessman or are located in remote areas attached to a golf course, etc. I'd be interested in something I could conceivably live in my self should I ever choose to relocate. So far I haven't seen anything that fits the bill but if you know of anywhere I'd be genuinely interested in checking them out.

You have a number of choices. Re-lease to the same management company, lease to another management company, rent and manage directly, sell, live in it,

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Yes, but I was talking about a scenario where I wanted to cash in my acquired capital appreciation. Thes question I mant to raise was "would the appreciation be actually there when I went looking for it?" In other words, it may have apprecaited say 50% in theory, but would someone be really willing to pay this?

'I know that several figures have been quouted on the rates with which French property has increased in recent years, but does it really apply to these places?'

Click to expand...

'Has anyone succesfully sold one of these at a profit in recent years?'

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What I was alluding to was some sort of case history of leaseback properties. As I understand it, the scheme has been in place for 20 years or more so I would have thought that some sort of evaluation of its success would have been undertaken. Why for example, would someone buy a second-hand one if they could get the tax benfits of a new one down the road?

'And if you keep them as holiday homes, capital appreciation isn't really an issue. So as a pure investment, they're not as good value as they might first appear.'

Not sure what logic these statements are based on?

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Based on the (perhaps incorrect) belief that the supposed capital appreciation isn't realisible in practice. Despite rises in the rates of the construction index, properties are only worth as much someone is willing to pay for them and I don't believe that these properties (certainly not the ones I've come across) would have a great second-hand appeal.

However, as I've said, I'm open to correction but all I've heard so far is hearsay.

Hi Doodle

>> 'I'd be interested in something I could conceivably live in my self should I ever choose to relocate. So far I haven't seen anything that fits the bill but if you know of anywhere I'd be genuinely interested in checking them out'.

For example, I was recently looking at the details of a Paris leaseback development where studios were up to 55m2 and 1-beds up to 75m2. These are large by Parisian standards. Prices are also on the high side though!

>> 'Yes, but I was talking about a scenario where I wanted to cash in my acquired capital appreciation. Thes question I mant to raise was "would the appreciation be actually there when I went looking for it?"'

I believe I attempted to address this same issue elsewhere on this forum but I will give it another go here. It is my opinion that leasebacks are long-term investments. You will see an average to good rental return (compared to Ireland) during the lease. However, it is unlikely that you will see the full capital appreciation until after the initial lease. I say this for the following reason. The rate at which the rent increases is tied to the construction index. Property prices in most pasts of France are increasing at a far higher rate than this index. Hence as each year of the lease passes the rate of rental return (as a percentage of the 'market' value of the apartment) is decreasing. Therefore, it is likely to be of less interest to buyers as each year passes. However, at the end of the lease the rent realisable from the property will re-adjust - hence making the property far more interesting to prospective buyers. Therefore, you are far more likely to see the capital appreciation at the end of the lease than during it.

>> 'What I was alluding to was some sort of case history of leaseback properties. As I understand it, the scheme has been in place for 20 years or more so I would have thought that some sort of evaluation of its success would have been undertaken'.

If you have a look at French speaking property websites you're likely to come across a great deal of feedback. Even though the scheme has been in operation for a few decades it is only recently being sold outside of France. On a general note it is very difficult to get objective reports about any property market anywhere in the world. I have come across some for various markets carried out by independant property consultants but cost an arm and leg. In any event such reports generally take a 'market view' rather than a 'localised view'.

>> 'Why for example, would someone buy a second-hand one if they could get the tax benfits of a new one down the road?'

I believe that after the initial lease, most leaseback owners re-negotiate with the current management company. Those units that are offloaded are most often sold as 'classic properities' i.e. no lease. Because of the quality of the developments (i.e. well maintained and plenty of onsite services and facilities) I would think that these should be attractive to future buyers.

Regards,
Paidi

quote: unregistered guestI get a 19.6% VAT refund from the French goverment.
I can get a mortgage of 80% net (95% after the VAT refund) at 3.4%.
There is a guaranteed return of 5.1%.


CAn someone confirm the above, i.e. am I reading this correctly in that the 80% mortgage from the French bank will include the VAT (and presumably other inbuilt costs such as furnishinggs etc), which you will then be refunded by the French Govt? On a cira 100,000 propoerty, this would equate to most of the 20% deposit needed by the investor - which could then be used to pay a lump sum off the mortagge, or buy another property?

Also, on a more geenral point, will irish bancks take into account collateral in an overseas investment propoerty if you are seeking a residential mortgage in Ireland?