Don’t rush into any of these schemes without fully researching the market and before you’re absolutely clear what you want and what you can realistically expect to get for your money.
Part-ownership in France
Part-ownership (bi-propriété) – also known as co-ownership and fractional ownership – is rapidly increasing in popularity, as house prices outstrip inflation and more people who cannot afford outright ownership seek ways of buying at least a share of their home in France. Part-ownership includes schemes such as a consortium of buyers owning shares in a property-owning company and joint ownership between family, friends or even strangers. Some developers offer a turn-key deal whereby a home is sold fully furnished and equipped. Part-ownership allows you to recoup your investment in savings on holiday costs while retaining equity in a property. A common deal is a four-owner scheme (which many consider to be the optimum number of co-owners), where you buy a quarter of a property and can occupy it for up to three months a year. However, there’s no reason why there cannot be as many as 12 part-owners, with a month’s occupancy each per year (usually shared between high, medium and low seasons).
Part-ownership provides access to a size and quality of property that would otherwise be unimaginable, and it’s even possible to have a share in a substantial château, where a number of families could live together simultaneously and hardly ever see each other if they didn’t want to. Part-ownership can be a good choice for a family seeking a holiday home for a few weeks or months a year and has the added advantage that (because of the lower cost) a mortgage may be unnecessary. Note that it’s cheaper to buy a property privately with friends than through a developer, when you may pay well above the market price for a share of a property (check the market value of a property to establish whether it’s good value). Part-ownership is much better value than a timeshare (see below) and needn’t cost much more.
A purchase should be treated like a business venture, even (or especially!) if you’re buying with friends or relatives. In particular, you should do the following:
- Agree on occupancy periods for each co-owner (e.g. a share of high-, mid- and low-season weeks).
- Agree on any restrictions that will apply to users (e.g. regarding smoking, children and pets).
- Decide on the decor and furnishing of the property, who is to do it and how it will be paid for.
- Decide on notice periods and procedures if one party wishes to withdraw from the arrangement.
- Decide whether or not the property is to be let when not being used by any of the co-owners and, if so, how the letting is to be managed and the income apportioned and paid.
- Set annual maintenance fees for each co-owner (which should be on the high side to allow for unforeseen expenses).
- Establish a procedure for dealing with problems.
- Finally, have a water-tight contract drawn up by an experienced lawyer to protect the co-owners’ interests.
One of the best ways to get into part-ownership, if you can afford it, is to buy a house yourself and offer shares to others. This overcomes the problem of getting together a consortium of would-be owners and trying to agree on a purchase in advance, which is difficult unless it’s just a few friends or family members. You can form a French company (société civile immobilière) to buy and manage the property that can in turn be owned by a company in the part-owners’ home country, thus allowing for any disputes to be dealt with under local law. Each part-owner is given a number of shares according to how much he has paid, entitling him to so many weeks’ occupancy a year. Owners don’t need to have equal shares and can all be made direct title holders. If a part-owner wishes to sell his shares, he must give first refusal to other part-owners. However, if they don’t wish to buy them and a new part-owner cannot be found (which is unlikely), the property must be sold.
A number of companies specialise in part-ownership schemes, including OwnerGroups Company (UK 01628-486350, http://www.ownergroups.com ).
Leaseback in France
Leaseback (propriété allégée or leaseback) schemes (also known as ‘tourism residencies’) are a French innovation which has since been adopted in other countries and are designed for those seeking a holiday home for a few weeks each year. There has recently been a considerable increase in leaseback purchases and a corresponding increase in development schemes to meet demand, but prospective buyers should be aware of the disadvantages and possible problems of the scheme as well as the advantages that are promoted by developers.
Properties sold under a leaseback scheme are always located in popular resort areas, e.g. golf, ski or coastal resorts, where self-catering accommodation is in high demand, and are either new or totally rebuilt properties. Leaseback schemes are available in many parts of France, including the Alps and Pyrénées, Brittany, Côte d’Azur and the Atlantic coast, Normandy and Paris. Most estate agents – foreign as well as French – can provide details of properties available on a leaseback basis. The table below gives examples of properties for sale on a leaseback basis in 2006:
Department : Property - Price
Aude: Apartments in complex with 2 pools & gardens - From e110,000 (1-bed)
Drôme: Apartments in complex with pool & other amenities- From e100,000 (1-bed), From e120,000 (2-bed), From e155,000 (3-bed)
Hérault: Apartments in secure development - From e140,000 (1-bed)
Isère: Apartments with mountain views - From e70,000 (studio)
Loire-Atlantique: Apartments on beach - From e110,000 (studio), From e125,000 (1-bed)
Var: Apartments with marina view - From e225,000 (studio)
A leaseback scheme allows you to buy a new property at less than its true cost, e.g. 30 per cent less than the list price. In return for the discount the property must be leased back to the developer, usually for 9 to 11 years, so that he can let it as self-catering holiday accommodation. The buyer (in effect) becomes the landlord and qualifies for a refund of the VAT (19.6 per cent) that was included in the purchase price, although it can take up to five months for the refund to be made.
In addition, the developer usually (but not always) ‘guarantees’ the buyer a fixed annual return (usually around 2 or 3 per cent of the property’s value, adjusted annually for inflation according to the Index of Construction Costs published by INSEE), irrespective of his actual rental income, so that the buyer is effectively given a discount (e.g. 25 or 30 per cent) off the purchase price. The buyer owns the freehold of the property and the full price is shown in the title deed. During the period of the lease, the developer therefore takes all the risks associated with letting and you have a guaranteed income.
The buyer is also given the right to occupy the property for a period each year, usually between two and four weeks, spread over high, medium and low seasons. These weeks can usually be let to provide income or possibly even exchanged with accommodation in another resort (as with a timeshare scheme). The developer furnishes (usually with a standard furnishing ‘pack’) and manages the property and pays all the maintenance and bills (e.g. for utilities) during the term of the lease (even when the owner is in occupation).
Interest-only Mortgages
It’s now possible to obtain an interest-only mortgage to buy a leaseback property and, under recent UK legislation, certain types of leaseback can be bought with a self-invested personal pension (SIPP). Essentially, the property must be classed as being part of a ‘hotel’, which is the case with most leaseback properties marketed in the UK. You’re entitled to borrow up to 50 per cent of the value of your SIPP to invest and can recover French VAT, although this must be paid into the SIPP. Purchase fees can be paid by the SIPP (i.e. out of your gross income), saving you income tax, and other ‘tax breaks’ can be applied. However, you may not use the property yourself; it must remain a pure investment.
What happens when the lease expires depends on the agreement you make with the developer: in some cases, the property is yours – unless you wish to extend the agreement, which you can usually do for a further three, six or nine years and with a longer usage period (e.g. eight weeks per year); in other cases, the lease must be renewed indefinitely.
Unless you’re happy with a ‘permanent leaseback’, e.g. as a holiday home, ensure that you will have full and vacant possession at the end of the initial lease period, as with some leaseback agreements you NEVER actually own the property.
If you used a SIPP to buy the property initially, you must ‘buy out’ the SIPP’s investment, as the propery is no longer used commercially. Note also that, if you sell a property within 20 years of purchase, you must pay a proportion of the VAT you saved to the government. Owners are also responsible for paying property taxes and income tax on the rent they receive from the developer.
Although the leaseback scheme is generally problem-free, you should beware of developers offering high annual returns (e.g. 6 or 7 per cent), as there’s no guarantee that these will be maintained in the long term or, indeed, achieved at all.
Tip: Check the standing of a developer and ask for references before committing to a scheme.
You should also check the penalties for opting out of the scheme should you wish or need to, as these can be high (the developer may have a right to claim ‘commercial compensation’), and whether the developer has the right to renew the leaseback period automatically, as he is permitted to by law. The developer may also charge management fees, and you should check what these are and what they cover. Finally, check what happens to the property if the developer goes bankrupt.
Tip: It’s important to have a leaseback contract checked by a legal expert.
A similar concept to leaseback is offered by Burgundy Cruisers: ownership of a canal boat with four weeks’ use each season and the opportunity to earn income from letting it through France Afloat during the rest of the season. Boats cost around e200,000. Details can be found on the France Afloat website (http://www.franceafloat.com ).
Guaranteed Rental Income Product
An alternative to a leaseback is a guaranteed rental income product (GRIP, usually referred to in French as an investissement de Robien after the law that enshrined it), which works in a similar way but, instead of the property being let on a short-term basis, lettings are long-term and the scheme caters not to the holiday accommodation market – now saturated in most areas – but to the nationwide shortage of rental accommodation for students and young, low-income workers, which is estimated at around 700,000 units. This means that properties tend to be in cities and large towns (particularly university towns) rather than in tourist resorts and, because the property management company isn’t dependent on meeting occupancy targets, that income is ‘guaranteed’.
The main disadvantage of a GRIP is that you aren’t able to use the property yourself until the end of the agreed letting period (usually nine years, as with a leaseback). In theory, rental yields are lower than with a leaseback, but in practice they can be higher and there’s less risk. The table below gives an indication of the type of property currently available, the approximate cost and the yield.
Location : Property Type - Price - Gross Yield
Côte d’Azur: studio apartment – e85,000 - 3.5%
Ile-de-France: 2-bed apartment – e250,000 - 4.5%
Limousin: 3-bed apartment – e160,000 - 4.35%
Midi-Pyrénées: studio apartment - e100,000 - 4%
Properties are usually bought off plan, and ‘deferred’ mortgages are available from a number of lenders (e.g. Crédit Foncier and GE Moneybank), who will take into account the rental income and will lend up to 80 per cent of the property’s value. Most GRIP properties are let unfurnished, though a few, such as rooms in university halls of residence and residential nursing home units, are furnished. At the end of the letting period, the property is returned to you as new. Details of GRIP schemes are available from most estate agents dealing in new-build properties. For more information contact Alistair Lockhart of Leggett Immobilier (05 45 93 12 41 or UK 08700-115151, http://www.frenchestateagents.com ).
Timesharing
Timesharing (multipropriété, but also called interpropriété, polypropriété, pluripropriété, multijouissance and multivacances) isn’t as popular in France as in some other countries, e.g. Spain and the US, where it’s the fastest growng industry in the travel sector. In France, timeshare owners purchase a right to occupy a property (jouissance) at designated times. Since 1986, timeshare properties have been owned by a limited company such as a société civile immobilière, in which owners hold voting shares intended to give them a say in how a property is managed. However, this is impractical when owners are spread around France or further afield, and management is generally performed independently (sometimes arbitrarily) by a developer or agent.
Timesharing (also called ‘holiday ownership’, ‘vacation ownership’ and ‘holidays for life’) has earned a poor reputation in the last few decades, although things are slowly improving. In recent years the Organisation for Timeshare in Europe (OTE) has been trying to restore respectability to timesharing, and its members (which include France) are bound by a code of conduct. This includes a requirement that buyers have secure occupancy rights and that their money is properly protected prior to the completion of a new property.
A personal guarantee must be provided by a timeshare company that the property is as advertised and, where applicable, the contract must be in the language of the EU country where the buyer is resident or the language of the buyer’s choice (you cannot sign away any of your rights irrespective of what’s written in the contract). A recent EU Directive requires timeshare companies to disclose information about the vendor and the property and to allow prospective buyers a ten-day ‘cooling off period’, during which they may cancel any sales agreement they’ve signed without penalty. However, although the directive technically binds timeshare companies, if they flout it you’ll need to seek redress in a court of law (if you’re an EU citizen, you can take legal action in your home country for a sale made in France), which may not be something you want (or can afford) to do!
Holiday accommodation investment
Instead of being sold as a property investment (which they never really were), timeshares are now promoted as a holiday accommodation investment or ‘vacation ownership’, i.e. you’re paying up front for many years (usually between 30 and 50) of holiday accommodation, which can end up costing you less than you would otherwise spend. Timeshare may be an attractive option for those with neither the means nor the time to buy and maintain a holiday home in France but who want the reassurance of knowing that their holiday accommodation will be of a high quality and available when they want it.
The best timeshare developments are on a par with luxury hotels and offer a wide range of facilities, including bars, restaurants, entertainment, shops, swimming pools, tennis courts, health clubs and other leisure and sports facilities. Developers include internationally respected hotel companies such as Hilton, Hyatt, Marriott, Ramada, Sheraton and DeVere.
If you don’t wish to take a holiday in the same place each year, choose a timeshare development that’s a member of an international organisation such as Resort Condominium International (RCI, http://www.rci.com ) or Interval International (II), which allow you (usually for a fee) to exchange your timeshare with one in another area or country; most modern timeshares are members of such a group, and the cost may include membership for the first year, after which you must pay an annual subscription (e.g. £67 for RCI membership). The highest rated RCI timeshares are classified as Gold Crown Resorts and allow you to exchange with any timeshare anywhere in the world (RCI has over 2,000 member resorts in some 70 countries). The not-for-profit organisation Voice (UK 0870-240 8993, http://www.voice.eu.com ) can provide a list of exchange organisations and other information about timesharing.
Although aggressive timeshare sales techniques are largely a thing of the past and it’s now illegal for a timeshare company to accept a deposit during the cooling-off period, you should beware of making too hasty a decision but take your time to weigh up the advantages and disadvantages and talk to people who have bought in the same or a similar development.
The OTE calculates that the average cost of a European timeshare week for 30 years is around €6,000. Some companies offer ten-year ownership schemes for as little as €3,000. On the other hand, top-quality timeshares in a top-rated resort can cost up to €12,000 for a week in a one or two-bedroom apartment during a peak period for the specified number of years, to which must be added annual management fees, usually between €300 to €500 per week, plus other miscellaneous charges, which can significantly increase the cost of your holiday. Always check exactly what additional charges you must pay and by how much they can be increased from year to year. Legally, management fees cannot be increased by more than inflation.
Other buying guidelines include the following:
- Check that at least 10 per cent of maintenance or management charges go into a ‘sinking fund’ for unforeseen expenses.
- Check that the company is a member of the OTE.
- Ask whether there’s an owners’ club in the resort, through which you can have a say in its management, but avoid a resort that has any sort of ‘action group’; this suggests that all isn’t as it should be!
- If you feel pressured into buying, don’t.
Advantage
Most experts believe that there’s little or no advantage in a timeshare over a normal holiday rental and that you’re better off putting your money into a long-term investment, where you retain your capital and may even earn sufficient interest to pay for a few weeks’ holiday each year.
If you wish to buy a timeshare, it’s best to buy a resale privately from an existing owner or from a timeshare resale broker, which sell for a fraction of their original cost. It’s possible to buy a week for as little as €1,000. When buying privately, you can usually drive a hard bargain and may even get a timeshare ‘free’ simply by assuming the current owner’s maintenance contract. Advertisements for resale timeshares can be found in retail publications such as Daltons Weekly and Exchange & Mart in the UK, and in local newspapers and on noticeboards.
Often timeshares are difficult or impossible to sell at any price and ‘pledges’ from timeshare companies to sell them for you or buy them back at the market price are usually just a sales ploy, as timeshare companies aren’t interested once they’ve made a sale (the legislation doesn’t cover sales, so you must beware of cowboys). On the other hand, developers may have a waiting list, in which case they could be interested in buying back from you, although at a considerably deflated price.
Note that a timeshare isn’t the same thing as a holiday or vacation ‘club’, where you buy points that can be converted into holidays in a selection of resorts, with no guarantee of obtaining the resort or the dates you want, although a number of timeshare companies, including RCI, operate a system whereby you can temporarily exchange your timeshare for points, with which you ‘buy’ flights, car hire or a different type of holiday such as a cruise. Nor is timeshare quite the same as renting. With a timeshare, you own the ‘title’ to a particular week’s occupancy, which you can bequeath in your will.
The British Timeshare Consumers Association (01909-591100, http://www.timeshare.org.uk ) publishes a useful booklet entitled Timeshare: Guide to Buying, Owning and Selling, and information sheets can be obtained from the Department of Trade and Industry (UK 020-7215 5000, http://www.dti.gov.uk ) and the Office of Fair Trading (UK 0845-404 0506, http://www.oft.gov.uk ).
This article is an extract from Buying a home in France. Click here to get a copy now.