This new, unique investment requires only a small capital outlay which is 100% protected by way of a lawyers clients account. Furthermore, clients receive a guaranteed rental income of 4.5% per annum of the purchase price throughout the period of the mortgage they choose. In fact, if clients prefer an interest only mortgage - they could receive a monthly income as well.
The developer building these developments has been established 42 years, has have already built over 250 developments, has 9,500 employees, a turnover of 1.5 billion Euros and 6.9 million clients who they rent property to. They are listed on the stock market and their developments are guaranteed by the government to be completed.
It all started in the late 1960's when, following the increasingly large number of tourists visiting France which continues today as the most visited country in the world, the French government recognised the need to encourage investment in the construction of tourist residences. To this end they decided to offer an incentive to investors by refunding the VAT on the purchase price of properties built for leaseback purposes.
Through freehold ownership of an cottage that is leased back to a management company investors benefit from guaranteed annual returns from their fully managed and maintained property with relatively low up-front costs and NO ongoing maintenance or running charges.
At present in France and until 2012, if a French taxpayer buys a property then they are allowed to offset 25% of the properties purchase price against their income tax. For example if someone bought a property for 300,000 Euros, 25% of this would be 75,000 Euros and this figure can be offset against their income tax over the next 9 years which is 8,333 Euros per year, hence why properties are selling so well. In the last three months this developer has sold over 1,000 properties, which is remarkable in the current climate.
To give you an example if the purchase price of a property was 300,000 Euros the only capital outlay to the investor would be 2% of this i.e. 6,000 Euros at reservation plus costs of approximately 3.5% at the issuing of the deeds, most of which with the Center Parcs development can be incorporated in to the clients mortgage, meaning it is possible to buy your own FREEHOLD cottage in a probably the top leisure park in Europe for a capital outlay of less than 10,000 Euros.
In addition to this clients can get to use the property themselves for the periods they decide and benefit from the guaranteed rental income, which with an interest only mortgage could even provide the investor with a monthly income, not to mention the capital appreciation of the property. Once complete a Center Parcs development is on average worth between 20% - 25% more than the original purchase price and annual capital appreciation of Center Parcs developments has run consistently at over 8% per annum.
Once completion has taken place the developer will lease the property back from the investor for 18 years (in two 9 year leases, as this is the maximum term for a commercial lease in France). The investor can if they wish have a further nine year lease giving a total of 27 years or they can just take the first 9 year lease if they prefer to sell sooner rather than later, although if a property is owned in France for 15 years or more the capital gains tax is nil.
To give you an example of how it works if the property cost 300,000 Euros, the guaranteed rental income of 4.5% is 13,500 Euros p.a. If the investor took an interest only mortgage at 3% (2.8% is possible at the moment) on say 294,000 Euros the mortgage costs would be 8,820 Euros. This would provide the investor with an annual income from the property of 4,680 Euros p.a., plus the investor gets someone else paying their mortgage for them and benefits from the capital appreciation of the property.
If the property was kept for 25 years, based on just a 5% growth per annum it would be worth 1,161,035 Euros giving the investor an incredible profit of 861,035 Euros - in addition to any gains received from the guaranteed rental income, on a cash outlay of less than 10,000 Euros.
Clients can if they wish take a lower guaranteed rental income and use the property themselves for periods of the year and can even swap their entitlement to one of over 250 other developments which the developer has built.
What is the procedure and how does it work?
1, A client secures a property and pays 2% of the purchase price.
2, The client then applies for a mortgage. In the event that the client is turned down the 2% is returned in full. As a rule of thumb to work out how much a client can borrow banks work on the following criteria. The mortgage repayments can not exceed a third of the clients net income after deductions of mortgages and loans etc they already have. For example if a client has a net income of 30,000 Euros and has no outgoings then a third of this is 10,000 Euros which needs to be able to cover the annual mortgage payments of the unit they buy.
However the bank will take into account the guaranteed rental income, so for example if the guaranteed rental income was 12,000 Euros then the clients net income would be 42,000 Euros of which a third of this i.e. 14,000 Euros needs to cover the mortgage. As the average price on the developments is 250,000 Euros and the interest rate is approximately 3% on an interest only loan an average mortgage would be only 7,500 Euros p.a. Joint incomes can also be taken into consideration thereby increasing the borrowing power.
3, In France with leaseback the procedure to purchase an off plan property is completely different to anywhere else. After paying the reservation fee nothing else happens until 50% of the development is sold. Once 50% is reached and this is where it gets interesting, the client signs at the notary and is issued with the title deeds to the property before the property has even started to be built. With the new Center Parcs development this has been set for April 2010 as to when contracts will be signed.
Once a client has signed at the notary and been issued with the deeds the developer applies to the bank who have granted the mortgage to the investor (via the investor) and request stage payments from the bank throughout construction drawn against the mortgage.
GUARANTEES
Guarantee of the 2% deposit
The 2% reservation fee which a client will pay to secure the property is held in a notary's client account on the clients behalf until the title deeds are to be signed. This reservation fee is fully refundable at anytime up until the signing of the deeds.
Guarantee of the development being built
In these uncertain times this is a very good question as many developments stand half built throughout Europe and further afield with little chance of some of them being completed for some time, until the world crisis passes. Some will probably never be completed.
However this will not be the case with this development. Once 50% of the development has been sold the government guarantees that should the developer not complete their project then the government will take over the project and ensure it is completed. Even considering how unlikely this would be the case with this developer it is still a reassuring safeguard to have.
You may be thinking this is all well and good but what if 50% on the development is not sold. Well to this end there is a further safeguard in so far as no deeds can be signed until 50% of the development has been sold. Until this figure is reached the investors 2% stays in the Notary's client account for their full protection and no money is released to the developer from the clients mortgage account.
Want to know more?
To find out more and to obtain a copy of the current price list please complete the box below or call free on UK: 0800 655 6046, Ireland: 1800 927 214 or elsewhere (00 34) 952 907 066.
