|
HAVING a second home in the sun has become almost de rigueur these days. It's not always a glamorous proposition, however, given the twin hassles of maintenance and letting the property to help pay the mortgage.
There is, however, a hassle-free way for private buyers to own a property in the sun, which they can use occasionally and sell on whenever they choose — leaseback schemes.
By far the bulk of leaseback properties are in France. The concept was championed in the 1980s by the French government to boost the amount of holiday accommodation on offer in the country. The government continues to endorse the scheme, waiving 19.6% Vat on new properties designated as leasebacks provided they are used as tourist accommodation for 20 years.
Purchasers own the freehold and generally lock in to a nine-year lease arrangement with a management company, which handles everything from renting out the properties to the day-to-day running of the development. Leases can be as long as 11 years and are usually renewable.
As the properties are specifically geared towards tourism, they are usually located in coastal areas, in the mountains or in Paris. Among the leasebacks currently available from Hamilton Osborne King, for example, are a one-bed apartment in the Alps for €162,166 and a deluxe fully furnished two-bed in Paris for €888,378.
Investors can hold their leaseback purely as an income-generating asset or opt to use the property for a few weeks a year. “Sometimes you will get a few weeks' use a year thrown in for the purchase price,” said Stephanie Patterson, an international sales negotiator at Hamilton Osborne King.
As might be expected from a relatively low-risk form of property investment, yields are consistent but moderate. “The principal advantage of investing in French leaseback property is the guaranteed rental income, which is generally 4%-6% of the purchase price,” said Fergal Maher, the taxation director of JPA Brenson Lawlor, the chartered accountants.
Patterson is more conservative, saying investors should expect yields of 3%-5%. “Yields tend to be a bit weaker at the moment as there is a push to incorporate holiday weeks,” she said. “It might be possible to rent out a normal buy-to-let property for more, but you would be taking on a whole lot of hassle with tenancy issues and maintenance.”
Buyers generally take out mortgages from French banks that are accustomed to dealing with leaseback schemes. Rates are low at present, typically about 3.1% for this type of mortgage. “The rental income can be offset against the interest on the mortgage, as can accountancy fees, rates, inspection visit costs and depreciation,” said Patterson.
Leaseback properties are suitable for investors seeking a long-term, low-risk proposition. “There is very much a movement from investors towards income this year,” said Denis Cody, a director of investment property consultants InvestorFirst. “People have made equity and they want to use it, not lose it. They want stability in their portfolio and leaseback gives that. It is also a low-risk way for first-time investors to get into property.”
Apart from the hassle-free nature of leaseback, another advantage of this style of property investment is that there are no rental voids. “That is the biggest problem with buy-to-let today, not the yields. If you have a two-month rental void out of 12, you can forget about your yield,” said Cody.
He adds that investors considering a leaseback property should look at the total projected return, including both the yield and likely capital appreciation. “New investors, in particular, can forget about capital growth and go for the highest income leasebacks, but these are typically purpose-built hotels in less central locations and the property might be worth little more than you paid for it in 10 years' time. Generally speaking, the higher the income, the worse the potential capital appreciation,” he said.
Those who buy should also remember to submit an annual tax return. “Because of the complexities of French tax law, owners should appoint a local tax agent to do this,” said Maher. “While French rental profits are taxable in both Ireland and France, they cannot be reduced by losses or tax reliefs attaching to Irish rental property, and vice-versa. Any tax paid in France, however, is allowed as a credit against Irish tax on the same income.”
If the property is sold, profits will be subject to French capital gains tax of 16%. This can be offset against the Irish liability of 20%, leaving 4% to be paid to the Revenue in Ireland. If the sale takes place within 20 years of the purchase, remember that the French government will claw back a proportionate amount of the Vat waived at the time of purchase.
Maher also points out that property in France is subject to French inheritance tax laws, which give significant rights to surviving children, regardless of the provisions of the deceased's will. If this could be an issue, investors might need to think twice before purchasing a property there.
Leaseback schemes have long been confined to France, but in the past year or so they have begun to emerge in other countries, including Spain, Italy and the UK. Of those, however, only the Spanish government waives Vat. Yields and lease terms in all three countries are similar to those in France. A typical leaseback in the UK, for example, is a one-bedroom apartment in Manchester priced at £140,000 (€205,600) with a net yield of about 5%, available through Cody's firm.
Above Article from http://www.timesonline.co.uk/printFriendly/0,,1-529-1571954,00.html
|
Let Us find Property in Spain for You
Help me find property in Spain
View News by Channel
Property News Search
News Archives
Media/Press Section
