The pound is weaker, recession-hit buyers' purses remain relatively tight, but a large number are investing in French leaseback holiday homes. Why?
We're now four years on from the start of the financial downturn, when the number of holiday home buyers in France inevitably dropped.
But slowly buyers have returned, according to Athena Advisors, despite the pound at a 15-month low against the Euro and France's new Hollande-led government has increased taxes on rental income and capital gains.
Can it really be the best ever time to buy a French holiday home?
That is certainly up for debate, but what is a fact is that buyers can currently pick up French 'Leasebacks' - sale and leaseback holiday homes - with 85 per cent mortgages at all-time-low interest rates, guaranteed rental returns and a variety of tax breaks.
Fixed 20 year mortgages are currently available at 3.55% and variable rate loans for up to 85% LTV are available from as low as 2.20%. Leaseback properties bought off plan also come with a French state funded VAT rebate of 19.6%.
"Buyers are currently choosing to place small deposits so that only a minimum amount of sterling is exposed to any currency movement," says Nicholas Leach of Athena Advisors (athenaadvisors.co.uk).
What are French Leasebacks?
They were introduce to aid the economy by boosting tourism accommodation and construction and to provide French and international investors with long- term investment properties providing guaranteed return.
Nicholas Leach from Athena Advisors comments: "Leasebacks are a highly successful model and the fact that they are still running after more than 30 years is evidence of this. Investors provide funding for the property developers, the tourism sector gets a supply of new high specification rental properties and investors own an income generating hassle-free property with tax breaks and the opportunity for some holidays."
Called 'Residence de Tourism' in France, the leaseback model is fairly simple. A buyer purchases the freehold title of the property which often enjoys communal facilities like swimming pool and spa and then leases it back to a management company typically for a 9-11 year duration, receiving guaranteed annual rental returns, usually between 3 - 5 per cent of the value of the property, which changes depending on how much the owner wants to use the property while the management company takes care of the property management rental and upkeep.
For the owner, the property then becomes a hands-off investment. The management company is responsible for the maintenance and upkeep of the property and communal parts and finding rental tenants. The owner usually receives their rental income quarterly and net of any management fees and all utility costs and insurance are also normally covered by the management company.
What sort of leaseback properties can you buy and where?
As leaseback properties are designed to appeal to a France's growing tourism market, they are normally located in highly popular areas. The French Alps, the Cote d'Azur and Central Paris are the most common areas for leaseback properties.
Nicholas Leach from Athena Advisors comments: "Leasebacks need to have locations which will suit the tourism demand. In the Alps they need to be close to the slopes and lifts, in Paris they need to be central and close and to public transport, and in the south proximity to the coast and amenities is key. Prime locations provide the best possible potential for returns, be it for rental yields in the short term and of course capital gains over a longer period."
Athena Advisors has recently launched a collection of well-located leaseback ski properties in Chatel in the Portes du Soleil skiing area. Called Les Fermes de Chatel the project offers a range of one to three bedroom apartments from €145,000. Over half have sold already.
The rental yields at Les Fermes de Chatel are up to 5% for investors who don't use the property and then this return tapers down depending on the level of usage. Athena also has a variety of leaseback properties in Paris and the South of France.
What about the tax increases?
For UK buyers French property taxes have changed and some of them have increased. But when buying property in France there are many ways to optimise your tax situation and in many cases the change in tax is marginal when comparing pre and post Hollande reforms, suggests Leach.
The main change is that international buyers now have to pay social charges on top of the rental income tax and capital gains tax, just like French residents. This social charge is on top of the usual tax rate but with the right structure non resident-buyers clients will not be affected.
For example, income tax for non residents was 19 per cent but now non-residents have to also pay the additional social charge of 15.5 per cent.
However, for any non-residents who buy a French property and intend to rent it furnished - like a leaseback property - they can elect for the BIC tax regime (Bénéfices Industriels et Commerciaux).
"The vast majority of non-resident purchasers fall into this category as it is rare for buyers to want to let an unfurnished French property," states Leach. "This tax system allows you to amortise the paper value of your property and therefore significantly reduce or even cancel your tax liability. You can also offset the interest and purchase costs against the taxable amount."
This added social charge now also applies to capital gain taxes but there is a taper relief system in place where your taxable amount reduces according to the number of years of ownership.
"So in reality, yes the taxes have changed and on face value they have risen, but when put into practice very little has changed," concludes Leach. "In fact Francois Hollande has actually tried to incentivise owners of second homes to re-sell and keep the market liquid by giving an extra 20 per cent taper relief on the capital gain tax. This is awaiting ratification."