The Leaseback System

Leasebacks have long been a part of the French personal pensions planning landscape, given their generous tax treatment, indexed income and low risk profile as a property backed investment. Increasingly, expatriates are waking up to this alternative to traditional pensions planning.

At the core of a Leaseback contract is the offer of a full refund of VAT, providing the development is held for a minimum period, usually 9 years. New builds in France normally attract VAT at 19.6%, so one of the most attractive aspects of a Leaseback scheme is the immediate refunding of the VAT which can be used to fund the 20% deposit normally requested by French mortgage banks. French Leaseback can therefore be arranged as virtually 100% loans.

The commercial lease governing the property lays out in advance of purchase the guaranteed income yield and the capital and income indexing process over the term of the lease. Buyers therefore know in advance what the property yield will be and can estimate the value of the property at the end of the lease, should they then wish to sell it. Buyers are therefore getting access to a fully managed property asset with a known yield over a known timeframe.

Typical yields for Paris based Leaseback are of the order of 4.8%, but can be as high as 5.8% for other quality developments.