02 February 2006

Beware of foreign property deals

A series of promotions and advertisements are offering the dream of a holiday home in France at a fraction of the usual cost. But beware, because as with most things that sound too good to be true, there are drawbacks.

Clever juggling with the figures using a leasing scheme set up by the French government and a low interest-rate mortgage in euros makes it sound as if you could have a holiday home without hassle or the cost.

The scheme suggests that you put down a deposit of 20%-30% of the price of a property yet to be built and promise to lease it back to a management company which guarantees the rental return. Under the leaseback scheme, launched 20 years ago to boost tourism and investment, you escape the 19.6% VAT levied on new properties.

You might be promised 4% to 6% of the purchase price each year in rent (this is known as the yield) while paying from 3% for your French lender's mortgage.

So what are the drawbacks? Firstly, if you want to use your holiday home for a couple of weeks a year, the yield usually drops by at least 1%. But the biggest catch is the rental guarantee: it's only as good as the company offering it. If there's too much competition for holiday lets in the area, rents will fall or the company could go bust.

If the company is successful it can automatically renew the leaseback rental agreement at the end of the original term.

Full article.

1 comment:

  1. Are you aware of any UK holiday let leaseback schemes. I take the point about the value of a rental guarantee being only as good as the company, but nevertheless it does seem more hasslefree than managing it yourself