How do leaseback schemes for ski properties in France work?

If you’re looking at buying a ski home as an investment in the French Alps, you’ve likely come across some described as leaseback. This is a scheme introduced back in 1967 to boost tourism in rural areas, and, depending on your situation, can offer a regular return for a largely hands-off approach. But what actually is the leaseback scheme, and how does it work?

What does it mean to buy a leaseback property?

A common misconception is that leaseback is a timeshare rental. What it actually means is that you buy a freehold property, usually an apartment in a block of other leaseback properties. This means you do own the freehold of your property, but you then lease it back to a management company for, generally, leases of nine years to a total of around 20 years. You receive a fixed return from the management company, usually 2-5%, and, as part of the leaseback scheme, a government refund on the VAT due on the property purchase.

Three-bedroom leaseback properties in Avoriaz. Click on the image to view the property.

The idea is that these sorts of schemes encourage developers to build quality accommodation and investors to buy and rent it out, thereby improving the tourism offer in the region – and hopefully attracting a higher quantity and financial quality of visitor.

What are the financial costs of buying a leaseback property?

As with any other property type, you can purchase a leaseback with a mortgage – and many lenders do look favourably upon buy-to-let investors in the French Alps, due to historically strong returns. The price should include all furnishings and fittings.

The headline financial aspect of a leaseback property is the refund on the 20% VAT that would usually be due on this purchase in France. Often, you’ll find the develop advances that 20%, so you don’t even need to pay in the first place. It’s very important to remember that you need to keep the property as a leaseback for twenty years, otherwise you will be disqualified from this exemption.

On-going costs normally fall to the management company, but repairs will usually be down to you. Make sure the contract makes the division clear. You will also need to pay the taxe foncière.

Two-bedroom leaseback apartment in Les Arcs. Click on the image to view the property.

How does the rental income work?

Your contract will state how much rental return, as a percentage, you will be guaranteed. Normally, it’ll be around 2-5%, but start-ups with less of an established reputation will sometimes offer higher to get more buyers through the door. It’ll be up to you to decide whether their scheme seems viable.

The money is normally paid every quarter or biannually, rather than monthly. As it’s guaranteed, even if no-one were to rent the property during a set period, you’ll still receive your total payment at that set point. The upside therefore is the stability of knowing exactly how much you’ll receive, but, on the other hand, compared to managing a rental yourself, you might find your overall average is lower some years than you’d make yourself.

However, if you are living overseas, that fixed euro income from France will still change in value by the time it reaches your bank account. Exchange rates change hour by hour, so, in the months between each payment, you could find your income is hundreds, if not even thousands of euros different.

Three-bedroom leaseback apartment in Morzine. Click on the image to view the property.

What can you do to protect against this? By using a forward contract, you can lock in the same exchange rate for up to twelve months, so your money in euros always converts to the same amount in pound, dollars or any other currency you use, at no extra cost to you. Find out more in your free copy of the Property Buyer’s Guide to Currency.

Can you use the property yourself?

You can use your property yourself if you want to come out and ski, but you’ll normally have to use it between fixed periods, decided on in the contracts.

Can you sell a leaseback property?

Since 2006, the law has said that if you sell before the twenty years are up, you don’t need to repay the VAT rebate, on the condition that the new buyer also takes it on as a leaseback under the existing lease.

To find out more about buying and selling property in France, make sure to read your free France Buying Guide. It provides expert insight into the steps to purchase a property, the legalities to be aware, the financial elements and more.