French Property - The Fractional Vs Leaseback Debate

Sept. 3, 2009 - PRLog -- With increasing coverage of fractional ownership, French leaseback specialists are competing in the market by comparing the offerings of the respective models. Trevor Little, editor of fractional property website Newskys.co.uk, notes:  “France remains a popular destination for those looking to buy overseas and, as well as standard full ownership, both leaseback and fractional ownership offer buyers solid routes to property ownership in this much-loved country. However, buyers need to fully evaluate all methods of ownership and make sure they purchase via the method that gives them access to the right property for them.”

Matthieu Cany, managing director of Sextant French Property, recently issued an analysis of the two purchase methods, He argues that the main advantage of leaseback is the range of properties buyers can access: “There is a wide choice of leasebacks in different areas including ski resorts, beach locations and in the countryside. As for fractional ownership, there is almost nothing on the French property market as most fractional ownership properties are in Spain, Portugal and Florida.”

However, he acknowledges that the type of property purchased similarly varies between the two models: “In terms of property type you can get a bigger and more expensive property with fractional ownership as each of the people are paying a portion of what they would have paid if they were to buy the property on their own. With a French leaseback, unless the investor has a lot of money, he will only be able to afford an apartment.”

Nick Turner, head and vice president of new business development for The Registry Collection, Europe, also argues that fractional provides access to regions where it is difficult to find new offerings. He told Newskys:  “The Provence Club in France, for example, has affiliated three properties in Avignon, Gordes and Aix-en-Provence, which are all in exclusive locations where it is virtually impossible to build any new developments due to rigorous planning regulations. This sets property prices at a premium and significantly increases desirability of ownership in all these locations.”

The investment and lifestyle mix.
Charles Cox, chairman of the Domaine de Lavagnace development in the South of France, also argues that some leaseback  schemes can be competitively compared with fractional offerings - offering “a low cost investment in a high quality five-star development, giving owners a luxury holiday home for four weeks per annum, with a multitude of added benefits”.

For leaseback specialists, though, a key differential between the two types of ownership hinges on the investment potential. Traditionally, leaseback has primarily been sold as an investment vehicle, with a degree of lifestyle, while fractional has tended to be the opposite.

Nick Leach, head of Pierre & Vacances Property Investments, UK & Ireland, told Newskys: “I would definitely characterise leaseback as more of an investment product. Around 60% of our clients are full investors, although this does vary with the area in question. For instance, we find that people like to have some usage for ski properties, while in Paris we find it is mostly an investment purchase as buyers are confident of the returns they can obtain. For me, fractional has always been more of a lifestyle investment. It’s a good holiday option as if gives you the chance to live somewhere you wouldn’t otherwise be able to afford.”

As well as the guaranteed income paid to buyer by the property management company, and any appreciation when the property is sold, another financial incentive of leaseback is, according to Cany, that “when buying a French leaseback, the client will be able to get the VAT back whereas with fractional ownership he can’t”.

Additionally, finance is also more available to fund the purchase, Leach adding: “One of the main selling points for French leaseback is that you can still get 100% finance. I’m not aware of any other country with that.”

However, in recent months there has been a marked rise in fractional offerings aimed at the mid-market, meaning more buyers can access fractional property at a lower cost and without the need for mortgage financing.

Brad Lincoln, CEO of The Best Group, notes: “A real development in the past six months has been developers realising they can offer customers guidance  with consumer finance - so if a buyer sees a property he or she likes, they can put down a low deposit and finance the rest on credit. We have seen examples where you can put down a deposit of as low as one thousand euros and finance the remainder.”

Similarly, more fractional opportunities are now pitched as investment opportunities - either though rental returns, appreciation of being suitable for SIPP purchase - thereby reducing the lifestyle/investment contrast between the products.

Les Milton, chairman of The Fractional Ownership Consultancy, outlines the investment case for fractional: “First there are lower entry levels to investment. The investment also often outperforms market averages - buying a quarter of a larger and /or better located property is likely to lead to greater appreciation than an outright purchase for a similar level of investment. You can also achieve greater diversification within one asset class by investing in different resorts, with different developers and in different markets - for example, one market may be flat whilst another is buoyant.”

Time and use
Another consideration is the time you intend to hold the investment. With leaseback, you typically lease the property back to a rental management company for a minimum of nine to 11 years, depending on the contract. Therefore, you are technically making a longer-term commitment than with fractional.

With leaseback schemes offering useage, an important element to evaluate is the value of any exchange element provided by fractional properties.

Another factor to weigh up is that most leaseback schemes currently don’t incorporate any element of exchange - although Leach notes that “one thing we do offer is the ability to swap weeks and stay in other properties”, while Garrigae is now offering an exchange element to its leaseback across a range of boutique resorts in France, with a rent in cash and rent in kind option to combine income with experience benefits. So one advantage the fractional/private residence club model tends to boast is the ability to enter exchange programmes and holiday at other global destinations.

Little concludes: “While the investment/lifestyle division isn’t perhaps black and white, with a number of fractional properties now pitching themselves as investments and many leaseback buyers purchasing for lifestyle reasons, the key is to ascertain exactly what you want,  and where, and match the product accordingly.”

ENDS

Notes to editors:

A joint venture between TheMoveChannel.com and Richmond Green Group, NewSkys.co.uk is a new portal specialising in fractional ownership property. Combining TheMoveChannel.com’s technical and online marketing experience with Richmond Green Group’s knowledge of the fractional ownership sector through its consultancy business RGM Fractional, NewSkys is the place to find all the latest fractional ownership investment and lifestyle opportunities.

For further information, please contact +44 208 439 9496

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A joint venture between TheMoveChannel.com and Richmond Green Group, NewSkys.co.uk is a new portal specialising in fractional ownership property.