Sale-leaseback: new investment opportunities in France

The principle of reverse leasing

The principle of sale-leaseback, also known as leaseback, is a convenient model in which an investor becomes the full owner of a real estate asset but commits to leasing it back to a specialized company for a predetermined period. This investment scheme is still relatively new in Russia and is mainly applied in the office real estate sector; however, it has demonstrated high effectiveness on the international stage, especially in France, where it began to develop in the late 1970s.

At that time, the French authorities created a system aimed at attracting funds from private investors to build hotels and resorts. Initially, the focus was on mountainous areas, but then development expanded to coastal areas in the south of the country. This cooperation became beneficial for all parties involved: France received new hotel complexes and a noticeable increase in tourist flow, while developers and investors were able to make a steady profit.

Advantages of sale-leaseback

Sale-leaseback is attractive to both local and foreign investors due to legislative support, as noted by Catherine Uzye, the manager for international agents at Imneo. When an investor purchases a property, they sign a contract that lasts for a minimum of nine years, which obligates them to lease the purchased property back to the developer.

• The developer takes on the responsibilities of promoting the properties in the international market;
• The property is rented out to tourists;
• Guaranteed stable income for the investor at a level of 5-6% of the apartment's value each year.

Additionally, property owners are exempt from paying value-added tax (VAT), which in France is 19.6%, and they can also obtain loans from banks at interest rates ranging from 3.7% to 5% per annum.

Guaranteed income

France“It is the only country where rental income is guaranteed with the possibility of VAT refund,” emphasizes Mike Yakubovski, a partner at the British company Leaseback Investments Ltd, which offers properties from French developers. Despite all its advantages, the principle of reverse leasing has not yet gained popularity among Russians, claims Maxim Panteleev, the general director of the Moscow agency "Real Estate in France," highlighting the lack of information about this investment format.

He is confident that as soon as this issue is clarified, client interest will significantly increase.

Choices for investors

Guaranteed income is just one of the attractive aspects of reverse leasing, as investors can choose comfortable living conditions in their apartments for predetermined periods: from two to six weeks a year, with the option to select times during both low and high seasons.

• The possibility of making completely clean investments;
• An investor can relax elsewhere and continue to receive a stable income from their property.

Ultimately, this model presents an attractive option for those looking to invest in real estate, as it offers not only financial benefits but also the potential to enjoy a vacation in the picturesque corners of France.

Real estate investment opportunities in France

In France, numerous investment options are opening up in the real estate market, among which the company Pierre & Vacances stands out. This residential complex designer is actively involved in the construction and sale of residential properties under the reverse rental model, allowing investors to expect stable income.

The feature of this approach is that income can reach4% per annumIf the investor chooses to take a two-week vacation during the low season, the income will amount to3.8%and when choosing one week during the high season –3.5%annual, provided that two weeks will be spent in the low season.

Available investment opportunities

There are many investment opportunities available in the market, including:

• apartments on the coast,
• apartments in large megacities,
• chalets in picturesque mountain areas.

The most popular are hotel complexes located in hot tourist spots. All properties are under the careful management of professional management companies, ensuring a level of service comparable to hotel standards.2-4 stars.

Advantages of the reverse leasing model

Key advantages of the scheme include:

• low tax obligations,
• the same rates of tax on income from leaseback income for French residents and foreign investors.

It is also important to note the presence ofVAT tax deductionin size19.6%when purchasing new housing under this model. In addition, reduced tax rates apply to these properties.

Mechanisms for VAT refunds

There are two main mechanisms for VAT refunds:

• In the first case, the developer sets the price excluding VAT.
• In the second, it refunds this tax to the buyer after the construction work is completed, which is usually within three months.

Investment security

When it comes to investment security, investors can choose between ready-made properties and those under construction. A real estate expertKatherine UzyeIt emphasizes that buying property during the construction phase in France is a fairly reliable investment.

Developers are required to gather all the necessary documents and obtain bank insurance for their projects. Uzier notes:“Banks provide financial guarantees only after at least half of all assets have been realized.”

A full range of services from developers

In addition, many developers offer extensive property management services, including:

• carrying out repair work,
• management and
• tourist support

what ensures a steady flow of tenants.

Tax legislation

From the point of view of tax legislation, the property is taxed in the amount of25%It's interesting that owners with a mortgage can avoid paying property income tax for the entire duration of the reverse lease agreement.Seneschalstates:“An investor may not have to pay property tax for 20-25 years, depending on the terms of the mortgage, and in some cases, completely eliminate this obligation.”

Administrative management

Management companies take on all aspects of management, including cosmetic repairs of properties, updating furniture, and much more. Apartment owners are relieved from utility expenses, maintenance of pools, and restaurants.

This system makes investing in real estate in France not only attractive but also convenient for those who want to maximize their profits with minimal hassle.

Introduction

Investors planning to settle into their new homes after the deal is completed should consider that the interior design in residential complexes depends on their location. In sunny regions of France, such as the southern areas, bedrooms and kitchens are often designed to be compact.

This is because residents are expected to spend most of their time outdoors or in local cafes and restaurants, as Catherine Uzier points out.

Cost and use of real estate

It is important to note that the property can be sold at any time. Although the interest period for the property is 20 years, there is an option to buy it back after 10 years, but in this case, half of the paid VAT must be returned.

Moreover, such housing can only be used as“secondary housing”and not as a primary residence.

Safety and information about companies

In terms of security, it is worth noting that in France, unlike in Russia, one can obtain complete information about the financial status of construction companies. Investors have access to documents such as:

• balance
• sales and profitability data
• data on the owners and management of the company

All this information is available through official government platforms. It should also be noted that owning property in France does not grant owners any visa privileges.

Nevertheless, obtaining an annual visa is not particularly difficult, as consulates are located in cities such as St. Petersburg and Yekaterinburg, and there are plans to open a visa center in Rostov-on-Don.

Prospects of reverse leasing

French companies engaged in reverse rentals are looking forward to attracting Russian investors. In this connection, they are intensifying their efforts to find partners.

For example, the company Pierre&Vacances is actively seeking real estate agencies and financial institutions that have strong business ties with it.

Plan for opening a representative office

The company, which works in the sphere of website development in Russian, plans to open its representative office in Russia in 2008-2009.

Company services

Mike Yakubovski, representing Leaseback Investments Ltd, emphasizes that their organization offers exclusive services to clients, including the translation and archiving of all financial documents and correspondence that investors receive from French financial institutions.

Commissions and buyer demographics

At the moment, Leaseback Investment is offering commissions of5%for projects located by Lake Geneva. The main clientele of buyers and tenants consists of local French people, which is explained by the presence of reverse lease programs in French banks, considered reliable long-term investments.

Interest of Russian clients

Russian clients, including high-ranking managers and businessmen, are showing significant interest in these offers. As Seneschal notes, Russians typically choose an option that allows them to spend time in their home.3-4weeks a year, favoring cities such as:

• Paris
• Nice
• Cannes
• Saint-Tropez

Location selection

These towns are located on the picturesque Côte d'Azur coastline and in famous resort areas such as Courchevel, La Tany, Val Désir and Val Thorens. The Seneschal emphasizes that the choice of location is crucial when buying a property.

Tenants and their categories

Among the tenants, the main groups include not only tourists but also students, businesspeople, and retirees. It is worth noting that according to French law, retirees have the right to live in their residences for the entire year.

Citizens of other countries

Citizens of countries such as:

• Ireland
• United Kingdom
• Belgium
• Sweden
• Dubai

Program for elderly people

In addition, the company has launched a program for building homes using the leaseback model in rural areas of France, intended for the residence of French elderly people.

Requirements of Russian clients

Maxim Panteleev notes that Russian clients interested in reverse leasing schemes have quite strict requirements. They choose specific cities or regions and get frustrated due to restrictions on the duration of stay in the rented property.two to six weeksand express dissatisfaction with some of the planning decisions. "It's difficult to meet such specific requests," says Panteleev.

Financing

Financing is also an important topic. A Russian citizen can obtain a mortgage loan from one of the French banks; however, according to Seneschal, a large package of documents will be required for this. This documentation must confirm the sources of income.

Favorable mortgage conditions

Despite the challenges, it's important to consider the possibility of a mortgage, as French banks offer favorable conditions, especially compared to Russian ones, with an interest rate of5-6%. Moreover, there are no real estate acquisition taxes involved.

Money transfer

The process of transferring funds is not very complicated, as it is possible to arrange transactions between two companies. However, for individual clients, there are limits on monthly transfers that should be taken into account.

Conclusion

In conclusion, it is worth noting that the principle of "reverse leasing" is an interesting and promising tool for real estate investment that can generate stable income with a reasonable approach. This scheme, popular in France since the late 1970s, opens new horizons for investors, providing a unique opportunity to combine personal leisure with financial well-being.

Prospects for Russian investors

For many Russians, this model remains inaccessible simply due to a lack of information, which in turn creates opportunities for education and further development of interest in this type of investment. I am confident that as awareness and knowledge among potential clients increase, the reverse rental market in Russia will also be able to take its rightful place.

Advantages of sale-leaseback

Moreover, due to low tax obligations and a high level of investor rights protection, this scheme can become an attractive alternative to traditional forms of investment. Investors can:

• Generate incomefrom rent
• To have the opportunityenjoying property during vacation

What makes this format even more appealing.

Real estate management

It is worth noting that property management is taken on by qualified companies, which allows owners to be confident that their investments are in reliable hands. Ultimately, reverse leasing is not only an opportunity to generate income but also a way to broaden one's horizons, learn about a new culture, and gain unique experiences.

The future of reverse leasing in Russia

Thus, I hope that over time we will see a growing interest in this investment model in Russia, and it will be able to win the hearts of domestic investors just as it has already done with the French and many foreign clients. This bond between rental income and the ability to enjoy ownership highlights the complex yet exciting nature of the investment world, opening doors to new opportunities and prospects.