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.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens