Residence de tourism, or leaseback, is a type of property investment, which is unique to France and has been popular among French investors for the past 20 years.

It has gained popularity among Irish investors in the past decade and is likely to attract more interest in the current economic climate as investors approach the scheme as a pension booster.

The incentives involved in this sort of investment include a Vat refund of up to 19.6 per cent on the purchase price from the French government, a guaranteed index-linked rental income for the duration of the leaseback term, and the involvement of a management company that takes responsibility for letting the unit, its upkeep, maintenance, furniture replacement and repairs.

France is one of 44 countries that Ireland has signed a double taxation treaty with and some expenses can be written off against rental income. What may attract investors to the French market is the ‘‘15 year rule’’, which applies to capital gains tax.

The rule states that if the property has been owned by you for 15 years then no capital gains tax is payable on the sale of the property, even though it is not, and may never have been, your principal home.

Between six and 15 years, an allowance of 10 per cent per year of the gain is granted, so that, by the end of the 15 years, complete exoneration arises. The leaseback system was introduced in France in 1987.

While it is not a government-run scheme it is supported by the government as a means of attracting the development of tourist and business accommodation by refunding Vat on the purchase price.

The terminology behind the system can be slightly confusing but the system itself is generally straight forward.

Investors can sometimes confuse the term leaseback to mean leasehold, however this is a freehold investment property.

Property owners sign an agreement with a reputable and well-established management company to let their fully furnished apartment, which is usually situated in a commercial or residential/holiday type development, for the duration of nine to 11.5 years with the option of renewing the lease agreement for a further nine to 11.5 years. Rent is paid to the owner every quarter.

The cost breakdown lists for leaseback properties can also appear daunting thanks to a French penchant for breaking down costs on every aspect of the purchase price. However, a list of abbreviations that usually appear on these lists is explained in an adjoining table with this article.

The scheme doesn’t suit everyone, however. Access to the property is limited to a few weeks per year at a reduced rental yield and owners of commercial leasebacks are not usually offered the use of their property at all.

Owners can choose to sell the property at any time, but because a long-term lease with the management company has been signed, the property must be sold with the remainder of the lease term in place and owners may not benefit from the full 19.6 per cent Vat refund in full as it is clawed back pro rata if you sell before the term of the lease expires.

In addition to that, prices for leaseback properties are often higher than standard properties in the surrounding area, which can range from five per cent to almost 20 per cent premiums.

‘‘It can sometimes be the case that prices are five or six per cent higher in leaseback schemes, but that premium takes into consideration that owners are not responsible for the cost of maintaining, refurbishing or renting their property and they get a guaranteed rental for at least nine years,” said Terence O’Mahony of Springvale Overseas Properties, which specialises in leaseback schemes. ‘‘Effectively, it’s armchair investing.”

While property prices have fallen by double digit figures in Ireland over the past 12 months, the latest reports from the main French national association of real estate agents, FNAIM, revealed an average capital appreciation of almost 4 per cent for apartments and houses throughout France last year. Although it is half the capital growth of the previous year, property is still appreciating in value in France and particularly in the small apartment market.

Given the current global economic climate, investing in leaseback type property schemes is becoming more attractive particularly to people who manage their own self-directed pension funds.

Typically, investors can use the purchase as a pension booster by putting down a 20 per cent deposit and taking out a 25 year capital repayment mortgage.

They make an initial top up to the rental income to meet mortgage repayments each month and use the 19.6 per cent Vat rebate to reduce top ups even further. As the rent is index-linked, it usually increases annually which again reduces top ups.

As with any property investment whether at home and especially abroad, investors should consult their solicitor or investment advisors before signing any contract.

The language of leaseback
Leaseback property terms and abbreviations:

T Type: classification of property type and size showing the number of main rooms including bedrooms
T1: one large space, usually refers to a studio apartment
T2: one bedroom
T3: two bedrooms
HT: hors taxe, meaning excluding tax (usually Vat)
TTC: toutes taxes comprises, meaning inclusive of tax (usually Vat).
TVA: taxe sur la valeur ajoutee, meaning value added tax (Vat).
RDC: rez-de-chaussée, meaning ground floor
Etage: floor/level
Meubles: cost of the furniture package. All leaseback schemes are sold fully-furnished