Ooh la la! A place in the Alps can be a cosy nest egg
Buy and lease-back a ski apartment in France and you could have a money-spinner – but be careful, says Laura Howard
Sunday 07 February 2010
Just when Britain is limping out of recession may not seem the most appropriate time to be snapping up a ski-resort apartment in the French Alps. But if you are looking to supplement a wilting pension or diversify your investment portfolio – or you're just a relatively debt-free mountain lover – it can present an alternative nest egg that's more viable than you might expect.
The key lies with the concept of leaseback which is when a buyer agrees to lease their property back to a management company for year-round rental. This arrangement works especially well in the mountains, which offer skiing during the winter and other activities, such as mountain biking and walking, in the summer.
Under a leaseback arrangement, all running costs, such as utility bills, repairs and maintenance, are met by the management company on the apartment owner's behalf. Property owners will be liable for Taxe Foncière however. which, depending on the region, is charged at between €10 and €30 per square metre a year. Contracts between apartment owners and their management companies must run for a minimum of nine years. After they expire, the contracts are rewritten on newly agreed terms.
The concept was developed by the French government in the 1970s in a bid to encourage individuals to invest in holiday homes that could accommodate the rocketing number of tourists. "France was, and still is, the most visited country in the world – with 83 million tourists annually – and, quite simply, there had to be enough beds for them all," says Nick Leach, the head of business development at Pierre & Vacances (P&V) – France's biggest developer and management company. "The vast majority of our ski homes are still sold to individual buyers on this basis."
The most obvious perk for leaseback property investors is that VAT (usually payable at 19.6 per cent on new-build property in France and between 5 and 14 per cent on renovations) is rebated to the buyer. And with larger management firms, such as P&V, buyers are not required to pay upfront at all.
The other bonus is that buyers are handed a contractual rental guarantee, which is calculated as an annual percentage of the property value. The level of return will vary according to the management company and the proportion of time the apartment is allocated for personal use. The idea however is that potential tourist or snow droughts that would pose a problem for owners renting privately will not be relevant.
Rental returns at P&V's three developments being built in the car-free ski resort of Avoriaz in Haute-Savoie are set at 3.5 per cent, for example – on the proviso that you don't use the apartment yourself. Prices of the apartments range from €200,000 to €1m. If you want a mix of holiday home and investment opportunity, there is the option to have partial occupancy rights. For example P&V's new luxury MGM Avoriaz development offers four-week occupancy rights with a guaranteed rental return of 2.8 per cent. One-bed apartments cost from €267,000 up to €875,000 for five-bed apartments.
But in the aftermath of the credit crunch, investors know all too well that a "guarantee" is only as good as the company issuing it. In the past few years, several smaller leaseback firms, including Transmontagne, Maisons de Biarritz and Immoconcepts, have gone bust. "They were simply unable to keep up with the unrealistic rental guarantees offered to investors – promises of up to 6 per cent in some cases," says Mr Leach.
Insolvency of a management firm is the single biggest risk to a leaseback investor, warns Keith Baker, the vice chairman of the international arm of the National Association of Estate Agents: "You will still be the official owner of the apartment but will either have to find a new management company or meet the charges and organise rental occupation yourself. You may also have to repay a percentage of the VAT that had been rebated. This is because, if the building is not used strictly as a tourist residence for a minimum of 20 years, the rebate no longer applies."
Only investors with a long-term outlook should consider leaseback. "To make a capital profit you will have to sell the property outside the nine-year lease term," says Seamus McConville, a director at Frenchleaseback.net – an estate agent for Britons buying leaseback homes in France. "Any sale within this time span and you could even make a loss as contracts differ and there could be penalties to pay."
The fact that 100-per-cent mortgages are available on French leaseback homes could also ring alarm bells – though, according to Mr Leach, this is what's helped P&V sell 345 of its 475 Avoriaz apartments already. In reality, the survival of some 100 per cent loans is testament to the conservative stance of French lenders, and lending criteria in France are especially tight.
Clare Nessling, the operations director at Conti Financial Services – an overseas mortgage broker – says: "French lenders will want to see that 35 per cent of your gross monthly income is sufficient to cover the new mortgage and all of your existing liabilities in the UK. Affordability is therefore based on existing debt rather than income levels; that's why France has fared relatively well in the downturn."
The typical minimum deposit when buying via traditional means is 15 per cent of the property value – though 100 per cent loans can be sourced against homes worth over £300,000. Mortgage rates start at 2.45 per cent variable and are slightly higher for 100 per cent deals at around 3.5 per cent, says Ms Nessling.
Getting a mortgage agreement in principal is a good first step, she adds: "It doesn't cost anything and presents you with a budget before you fall head-over-heels in love with a ski apartment."
Whichever route you take, buying fees will apply. If you buy an existing property, "notary fees" – which incorporate all costs including stamp duty and mortgage regulation tax – will amount to between 7 and 10 per cent of the property price, says Mr Leach.
As always, keeping your wits about you is a good idea. You do, however, have a safety net. All homebuyers in France have a seven-day cooling off period after exchange of contracts in which to change their minds.
- 1 Kylie Jenner challenge: Bizarre lip suction device inspired by Kardashian sister goes viral
- 2 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 3 Katie Hopkins and The Sun editor are reported to police for incitement to racial hatred following migrant boat column
- 4 Bruce Forsyth backs assisted dying campaign: 'If I had Alzheimer's or dementia I would do something about it'
- 5 Giorgio Armani criticises the way some gay men dress saying 'a man has to be a man'
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...
£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000