Is the sale and leaseback property investment model still an attractive one?

The sale and leaseback model (or residences de tourisme and propriete allege for the Francophiles among us) was first introduced in the early 1980s by the French government at a time when the country’s construction industry needed a boost. The initial aim of the scheme was not only to create new jobs, but also to increase the supply of holiday homes and, consequently, improve tourism.

As an incentive to investors, the government allowed the VAT (19.6 per cent for new build properties) on the purchase price of properties built for tourism or ‘leaseback’ purposes, to be recovered, representing a significant saving on the purchase price. This incentive, combined with massive investments in roads, trains and supporting infrastructures, as well as climatic, culinary and cultural benefits, led France to become the world’s most visited country; a sale and leaseback success story if ever there was one.

Some 20 years on, and the leaseback scheme is still particularly attractive to anyone seeking a low risk, hands-off long-term form of investment. It presents investors with the opportunity to purchase property (often new build or off-plan) and then lease it back to a management company for a typical term of nine to 11 years, with most leases renewable beyond the initial fixed-term agreement.

During the leaseback period, the management company is responsible for letting the property, furnishing, maintenance, and paying all bills. However, it is essential that investors enter into an agreement with a reputable management company, because if they should go bust, the investor will be left without rental income.

The success of the French innovation has resulted in the introduction of similar investment models in other countries, most notable rental guarantees, although some companies still see them as a traditional leaseback investment.

Properties sold under a leaseback scheme are normally located in popular resort areas such as golf, ski or coastal resorts, where self-catering accommodation is in high demand, and are newly built 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.

The MGM Group, for example, is the biggest property developer in the French Alps, and has three leaseback options:

  • Guaranteed rental income with private use of the property for four weeks, two in the ski season and two in the summer season, and a further four weeks outside the ski season (in May, June, September and October) when the residence facilities are closed but owners can have access to their apartments.
  • Rental income paid in advance as a deduction from the purchase price with private use of the property for six weeks, three in the ski season, three in the summer season and a further four weeks outside the ski season (in May, June, September and October) when the residence facilities are closed but owners can have access to their apartments.
  • The new Flexi Option whereby owners whose primary reason for purchase is to generate income, have greater flexibility with regard to personal use and the dates when they occupy their apartments.

Nathalie Turchet, MGM UK sales manager, says: “If buyers decide to take a French mortgage to buy a leaseback property, they can offset the interests against tax resulting in the fact that buyers are very rarely subject to tax on the rental income they receive. It is important to underline that France, unlike Britain and the US, has always had very strict mortgage lending requirements, so the French banks are more likely to lend today that any British lender.”

Pioneers, Pierre & Vacances (P&V), adopted the leaseback model in 1979, and the company has marketed over 250 residences in the best locations in Spain, Italy and the French Caribbean, as well as France.

Investors in a P&V leaseback property generally have the option to choose a formula that allows them to stay at their property for a number of weeks each year for a reduced rental guarantee. These weeks may also be used in other equivalent properties in one of 250 other P&V residences across Europe. In addition, all owners have the benefit of a 15 to 20 per cent discount for all stays at P&V properties.

Nick Leach from P&V says: “P&V are unique in the fact that they are the developers, sellers and most importantly managers of the properties so have a clear vested interest in the quality build, location and ongoing maintenance of the properties as well as providing an easy re-sales exit for investors.”

He adds: “Sales of leaseback properties to international clients have increased exponentially since 2003.  The leaseback scheme in general has been a big success.  In the current climate, long term guaranteed rental income and favourable French lending conditions combined with the prospect for good capital growth in prime located French property continues to attract investors looking for a safe bet.”

Key advantages

  • A low risk investment
  • Hassle free
  • Possible good returns
  • Financial (tax) advantages
  • The investor can use the property himself (depending on the terms of the acquisition)
  • The asset will be well looked after


  • Yields can be much lower than they could be if let outside such a scheme
  • Fixed rental returns do not necessarily appreciate inline with capital growth
  • With some leaseback properties you never actually own the property
  • There can be penalties should you wish to opt out of the scheme
  • Some schemes may not be that flexible in terms of personal usage
  • The developer may charge management fees

Some information contained within this article may have changed since it was first published. HomesOverseas strongly advises you to seek current legal and financial advise from a qualified professional.

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