By Marc da Silva, freelance property journalist and editor of HomesOverseas.co.uk
Investing in homes overseas can be a great way to accumulate wealth. But before parting with your cash, an investment strategy needs to be developed. Where should you invest your money? What risks are you willing to take?
Many emerging property destinations, which were so popular during the height of the global property boom, have now fallen out of favour with most property investors, due to the high-risk, high-return, boom-bust nature of investing in these new markets.
A lot of investors have now returned to investing in safer property markets, where the economic fundamentals remain strong and the risks are far lower.
Take France for example. The recent global credit crunch had much less of an impact on the country’s economy, ensuring that it was the first European nation to come out of recession last year.
France’s robust economy has benefited the French property market, with home prices and mortgage transactions having improved across many parts of the country since mid-2009. France has traditionally always been a rather safe haven for property investors as it is less prone to dramatic price falls and has historically offered good long-term returns, thanks largely to the country’s prudent attitude to mortgage lending.
Mortgage borrowers in France are generally only allowed to borrow one-third of their total gross monthly income. This has ensured that mortgages remain readily available, with high loan-to-value home loans obtainable at competitive borrowing rates.
The French buy-to-let market, particularly the leaseback property sector, is reportedly attracting particular interest from global investors, due to the low-risk, hands-off, nature of this long-term French property investment vehicle.
France Leaseback Properties
The French sale-and-leaseback (propriete allege) system was introduced by the French government back in the 1980’s to increase the number of holiday homes available in the country.
This investment vehicle presents people with an opportunity to buy a home and then lease it back to a management company, often for a typical term of 9 to 11 years (extendable up to 18 years) in return for a guaranteed annual rental income of 3 to 6%.
During the leaseback period, the management company is responsible for letting the property, furnishing, maintenance and paying all bills. Meanwhile, homeowners get to benefit from a guaranteed rental income and potential capital growth throughout the duration of the leaseback agreement.
There is also the added incentive that most leaseback properties in France qualify for a 19.6% VAT rebate from the French government.
Homeowners are usually permitted to enjoy a few weeks personal use of their home each year.
However, any investor who never intends to personally use their leaseback property may find that their investment qualifies to be placed into a UK Self-Invested Personal Pension (SIPP).
This is because the leaseback property is classified as a commercial investment, as long as the owner does not make any personal use of it. But this model is only likely to appeal to investors with at least £150,000 in their pension or those with a high net income.
A Stable Investment
The prospect of a guaranteed rental income, good long-term capital growth, VAT exemption and an established mature market, offers little doubt that French leaseback properties look a safe bet for investors.