Lease-Back as the best way to invest in France
In the mid-80s the government of France came up with an interesting scheme to raise additional cash flow in the touristic sector. They have proposed to the French, as well as citizens of all other countries of the world from millionaires to middle-class people to participate in the construction of tourist accommodation.
The state program called Residence du Tourisme implied fair deal. You invest in certain real estate items: apartments, cottages, villas and agree to demise them to some firms authorized by the state the next few years - to the specialists in the hotel business or real estate rental to tourists. And for the government will liberate you from VAT, while the partner company pays it and all other taxes for you as well as they cover the operating costs for the maintenance of the apartment, including utilities and furniture replacement. You will thus receive a guaranteed net income rising with inflation and can even enjoy your apartment for a couple of weeks a year.
This scheme also known as the international term Lease-Back ("purchase and subsequent binding lease") is very well caught on and has successfully existed for 40 years in France. This fact can be easily explained. Hold the palm of the number of visits by tourists (77.000.000 tourists visited France in 2002, and earned her an income of 34,500,000,000 euros), the country seeks to take more and more visitors, thus providing employment to hundreds of thousands of Frenchmen. The second aspect involved - in fact, private investors - too happy, and lack of customer sales of objects of Residence du Tourisme do not know.
Strengths of the offer are obvious. With the "specialization" of housing if given, it is always situated in the most popular tourist centers in France: the heart of Paris and the Cote d'Azur. With such a right choice it is difficult to make a mistake: it is estimated that about 20 of the 95 departments of the country are attractive in terms of foreign buyers are. However, 80% of that twenty of the Overseas Private Investment settles only in 4 administrative units. Real estate in such places is the best one protected from market fluctuations over time and steadily more expensive.
Objects under compulsory lease are offered. They are: the sea apartments, cottages in the mountains, the modest one-bedroom studio apartments and villas costing millions of euros. Sometimes it is renovated housing - centenary of Paris high-rise buildings overlooking the Seine, and more often they are the new buildings on the Cote d'Azur. The latter are of the most interest, because the tax exemption is the biggest.
Those who finance the construction of a new square feet under lease, the French state is fully refundable tax of 19.6%. That is, minus 16.4% of the average market price of housing. The apartment that is usually worthwhile 100,000 euros will cost you only 83,600 euros. Not surprisingly, the most popular among the buyers are the resort towns like San Tropez, Antibes and Nice. Many projects are bought by the British, Germans, Dutch, even at the zero cycle. VAT from the buyer or developer simply does not take or return the money to him after some time after settlement with the state. In the event of purchasing housing in historic reconstructed buildings VAT is refunded at a rate of 10%.
What is the Housing Lease-Back, for example, on the Cote d'Azur in Villefranche-sur-Mer? This is a new house with the same type of one-and two-bedroom apartments, in which there is a telephone and which one should not even furnish or equip with domestic appliances to lease it. This operations are fulfilled by the partner company. On the ground floor of a residence there should be the concierge, in a fenced area should be a park, playground, parking, outdoor swimming pool and tennis courts. If it is a separate cottage in the village closed, the situation is usually even more adopted for resting. At leisure facilities of the so-called "system of alternative accommodation" are in great demand. For a family of several people rent with own kitchen and a minimum set of services is cheaper than staying in a hotel where necessary to pay for everyone.
The need to take a property for rent for most buyers, investors is no encumbrance, but a very good deal. After all, usually an investment property or do not consider them as a shelter for their own needs, or it takes only a week or two a year - during the leave period. Engage in self-surrender, and at a distance is very troublesome, and subject to seasonal downturns and rises in demand this occupation does not guarantee a stable income, and time-consuming of your daily life. The company just leased from the owners of apartments and houses on the program Residence du Tourisme, guarantees a fixed amount of quarterly earnings: Generally, it is 5-6% per annum. In this case the owner does not care, low or high season, whether the number of tourists has decreased because of international terrorism or extreme weather events - according to the contract, he will get his in any case. And it is almost pure profit: all the current waste management company takes over.
The period for which real estate will be given in the work, often is 9 years old, but may be extended up to 20. However, this does not mean that the whole so long you cannot visit their property. For a homeowner in the contract usually stipulates the right to live in a house or apartment for one or two weeks a year, nothing pays tenant. Because of these most weeks, some people are sometimes confused with the Lease-Back timeshare. But between them there is nothing in common: in this case, you and only you are a sole proprietor, and after nine years can manage stocked with furniture and household equipment shelter as you wish.
You can move it to a student grown children (in a nice university there) or leave empty. To extend the lease with the company and continue to receive steady income or to sell at a profit had grown significantly in value apartment.
In any case, as compared to bank deposit invested in such real estate money surely bring great profits. It is only necessary to choose an agent who specializes in the sale of just such a property.
The contract is with the management company for a period of 9 years. The management company pays the owner the agreed and indexed in line with inflation monthly rent. The management company transfers property to sublet its clients to different periods (from several days to several months). Moreover, all risks relating to the sublease, the management company takes over, for example, automatically carries all the risks for any damage caused by sub-tenants (for the property owner, thus, de jure tenant is a management company, not tenants in de facto).
This is for the owner-investor a guarantee of security and profitability of investments.
Indeed, in not depending on whether the property is rented or not, the owner has a one hundred percent guarantee that the rent agreed upon in advance in the contract will be paid a management company, regardless of whether customers will find it or not.
The annual rent paid by the management company of the owner of property, a standard equivalent to 5-6% of total investments.
The owner has the right to live in his apartment, decorated by contract leaseback, in the periods specified in the contract with the management company. There are four standard options of the contract:
Lease for two weeks of a personal residence of the owner, a week during the winter (except French school holidays) and 1 week during the summer.
Lease for 4 weeks of a personal residence of the owner, one week at Christmas, one week in February - April and 2 weeks during the summer.
Lease for 6 weeks of personal residence of the owner, a week at Christmas, one week in February - April and 4 weeks during the summer.
In some cases, when the owner is interested to live in her apartment as long as possible, but want to save 19.6% of the price, may make a special contract, the so-called "Mandat de gestion". In this case, the owner rents the apartment management company only 6 months and 1 day each year (this is necessary to recover the VAT (VAT)). At other times they can use their property as they wish. This option is not applicable in all cases, because Lawyer of the management company must show the tax authorities, which in this case it is not about avoiding taxes and application for this case leaseback legally.
Why was the "leaseback" system introduced in France?
The influx of tourists to France is more than in any other country in the world. The French themselves often rent housings in the long term - especially in the summer months. Beds in hotels permanently miss. That is why the French government decided to encourage foreigners to invest in the scheme "leaseback".
What are the benefits of the "leaseback"?
When buying real estate scheme "leaseback" purchaser exempt from VAT, which in France is 19.6%. This means that the property is worth, for example, will cost 100 000 83 600.
Guaranteed annual rental income is typically 6% of the cost of housing. And this despite the fact that you will be relieved of all the costs associated with home ownership. Typically, this revenue is indexed and is independent of inflation. In addition, under certain conditions, rental income can be completely exempt from French taxes.
All the risks associated with the delivery of housing, moving the responsibility of the management company. For example, if the tenant caused damage to your apartment - it's a problem the company, not yours. In addition, you get a steady income, regardless of whether the company failed to hand over your property.
There are mortgage loans in most cases up to 95% of the cost of housing a fixed interest rate - 5.2% or 4% on a flexible payment system. 95% of credit are unlikely to be covered by income from rents, but 60-70% of the loans - completely.
You can spend holiday in your apartment for free. Length of stay in different programs are different, usually 2, 3 or 4 weeks per year. You can discuss with the company additional time spent.
"Leaseback" is available in places where we expect a big jump in property prices over the next nine years. Moreover, their own apartments and houses - just like 4 or 5 star hotels - located so that their value will rise quickly.
Where "leaseback" is available?
"Leaseback" is possible only in new or completely redesigned parts of France, including Paris, Normandy, the Atlantic coast, Mediterranean coast and southern France. In addition, many European countries have joined the program "leaseback", so some of them also have a "leaseback" projects.
Multiple investments
You can buy a few "leaseback" projects in different regions, which will allow your family and your friends to spend holidays, such as Paris, Normandy, Nice, or the Alps in all seasons. Thus, you can also avoid the risk of falling demand for property in specific areas
Safeguards and security investments when investing leaseback
According to the scheme leaseback, the investor can only buy a new apartment or house, only "high level" (residence high-end tourism or business).
Since the purchase it is full and sole owner of the property.
leaseback - investment scheme in which the owner receives from the very beginning one hundred percent ownership, while having a steady income from renting their property to rent, income, guaranteed by French law, including Law on leaseback.
The contract is with the management company for a period of 9 years. The management company pays the owner the agreed and indexed in line with inflation monthly rent. The management company transfers property to sublet its clients to different periods (from several days to several months). Moreover, all risks relating to the sublease, the management company takes over, for example, automatically carries all the risks for any damage caused by sub-tenants (for the property owner, thus, de jure tenant is a management company, not tenants in de facto).This is for the owner-investor a guarantee of security and profitability of investments.
Indeed, in not depending on whether the property is rented or not, the owner has a one hundred percent guarantee that the rent agreed upon in advance in the contract will be paid a management company, regardless of whether customers will find it or not. The annual rent paid by the management company of the owner of property, a standard equivalent to 3-5% of total investments. The owner has the right to live in his apartment, decorated by contract leaseback, in the periods specified in the contract with the management company. There are four standard options of the contract:
- Lease for two weeks of a personal residence of the owner, a week during the winter (except French school holidays) and 1 week during the summer.
- Lease for 4 weeks of a personal residence of the owner, one week at Christmas, one week in February - April and 2 weeks during the summer.
- Lease for 6 weeks of a personal residence of the owner, a week at Christmas, one week in February - April and 4 weeks during the summer.
- In some cases, when the owner is interested to live in her apartment as long as possible, but want to save 19.6% of the price, may make a special contract, the so-called "Mandat de gestion". In this case, the owner rents the apartment management company only 6 months and 1 day each year (this is necessary to recover the VAT (VAT)). At other times they can use their property as they wish. This option is not applicable in all cases, because Lawyer of the management company must show the tax authorities, which in this case it is not about avoiding taxes and application for this case leaseback legally.
- Sale or resale of immovable property by IMC Leaseback.
Owner may at any time to sell your property or terminate the commercial lease with a management company to use its own discretion. But these are subject to the following conditions:
- When you resell the object to a third party who is willing to continue to remain in the leaseback:
In this case the owner will get back all the money spent (sell.it) and will not pay VAT, as facility continues to meet the main criterion leaseback - contribute to the development of tourist industry in France. More than that, most of the objects included in the system are built into most leaseback investment attractive regions of France, which allows a maximum likelihood count on the rise in the price of the object. Rental income is not the only source of income for the owner of the object leaseback, as but this increases the price of the object, ie increased capitalization. When selling an object in this embodiment, the investor not only restore its original status quo, but will make a profit.
- Resale of a man who does not wish to continue leaseback.
This sale will only be possible at the end of the contract or agreement with the management company. In both cases the investor will have to reimburse the State of France VAT, paid for it by the State for the purchase.
The VAT, which must be returned to France, is calculated as follows:
The initial amount of VAT received by investors from the government of France - 1 / 20 tax management company that the investor receives annually under the lease.
Example:
Initial investment: 120 000 €.
VAT (19.6%): 19 665 €
The period during which the investor was in the leaseback: 10 years.
Investor will have to reimburse the French system of tax collection amount: 9832 €
This inconvenience mitigated by the fact that property prices in France increased annually and steadily. The increase in prices, as mentioned earlier, is due to the real needs of France. France is now actually one of the leading countries in Europe in the fertility rate - more than 700 000 people annually.
Accordingly, the compensation will not be charged VAT on investment funds: Ten years after the treaty leaseback property value, the investor bought, will grow at least in half, so the state in any case offer an investor version of the tax free (ie not return VAT) + all originally paid for the property investor money. In addition, the investor will be the entire amount of lease payments for 10 years, which is very close to the value of the property.
Three basic types of housing that meet the scheme leaseback:
1. Actually to stay (The residential services):
Leaseback objects are usually located in the city center and offers accommodation for business people are scheduled in several weeks to several months.
Also, these apartments are convenient for accommodation of students: a real need for such housing in France (according to the observatory of student life - a French government agency) - 37.6% of students in France can not find housing. According to forecasts by the same organization, over 15 years the number of students in France will double. In 2007, with applications for housing requested 383 000 students, with the number of students in France increased by an average of 80 000 people a year.
2. For business travel:
This group includes more than 10 million people a year who come to visit France for a period of several days to several weeks of professional needs.
Business tourism in France gives 23 billion euro turnover and employs nearly 300 000 people. The economic importance of this sector is such that business tourism, as well as new housing is the subject of special support of the Government of France. In 2007 the French Government at the initiative of the Ministry of Economy was organized by the National Committee on Business Tourism.50% of business travelers to remain in France for longer periods, and therefore need to be more hospitable shelter than it can provide traditional hotels.
In addition, the vast majority of traditional French hotel does not have such support services as equipped with the latest technology conference rooms, rooms, meeting rooms, which are automatically present in the objects leaseback, designed for business travel.
3. Tourist residence:
France leads the world in the number of tourists. Every year it is visited by 85 million tourists. More than 118 million air passengers passing through French airports. Tourist residences represent a second type of accommodation for tourists and foreigners after a traditional French hotel. Thus the number of nights spent by the average tourist in a tourist residence significantly (according to some - many times) is greater than the length of stay in an ordinary hotel. Standard time staying in a tourist residence is two - three weeks, and they offer many advantages for travelers:
- Residences are usually located in the most popular areas for tourists, but far from the crowded areas
- The services offered by the residences, much larger than a standard set of traditional hotel meeting the client, breakfast, jacuzzi, sauna, swimming pool, fitness room, tennis court.
In addition, the residence of successfully compensate the decreasing number of hotels in France - this phenomenon occurred in the past 10 years (and the trend does not change!), For greater benefit of the remaining hotel chains - rising prices and occupancy, which makes the tourists (in high season - standard), book rooms for a month or more before arrival, while the usual hotel package of services does not correspond to the long stay in it.