Buying Property in the French Alps

A new French law will, in effect, boost substantially the capital value of properties being sold off-plan through a method of property purchase being introduced for the first time by the biggest developer in the French Alps, MGM.

The company is using the leaseback partnership scheme to sell the apartments it will start building later this year as part of Le Padisha, a new four-star residence de tourisme 200 metres from the tree-lined slopes of Courchevel 1850.

The resort - said to be the most prestigious in the Three Valleys, the world's largest skiing area - is two hours by road from the airports at both Geneva and Lyon. In addition, scheduled and charter flights serve Chambery Airport, only an hour away.

Due for completion in December next year, the residence comprises 38 one-, two- three- and four-bedroom apartments. Currently they are selling off-plan with prices starting at just over €1 million for a two-bedroom apartment, rising to € 2.7 million for a four-bedroom home.

Under the residence de tourisme scheme introduced by the French Government to make more accommodation available for tourists, VAT (currently 19.6 per cent) is deducted from the purchase price but, compared with the conventional leaseback method of purchase - whereby purchasers buy a freehold property and then lease it back to an approved management company to let for an 11-year term - MGM's new 20-year leaseback partnership scheme has a number of additional benefits.

Until recently, in order to benefit from the full VAT discount, owners were required to lease their properties for a period of 20 years; as the leaseback partnership scheme at Le Padisha spans 20 years, the buyer automatically would gain all the VAT.

But under a new French law - which gained little attention in the UK and Eire when it came into effect last year - and subsequent recent revisions, the investor is no longer required to repay any VAT at all whenever the apartment is sold, even if that is within the first five years of ownership.

To qualify, the residence must be ‘classified' within an official tourism star rating. Most residence de tourisme developments built by MGM and managed by the MGM subsidiary CGH (Compagnie de Gestion Hoteliere) have four-star ratings.

“This change in the law means, in effect, a significant and immediate increase in capital value,” says Richard Deans, sales consultant in MGM's London office. “Typically an investor who buys a two-bedroom apartment at Le Padisha priced at €1.1 million only pays € 920,000 under the leaseback scheme, but the value of the property remains at €1.1 million or more, as prices increase every year.”

Under leaseback partnership the purchaser of a freehold property within the residence becomes a shareholder in the overall development. This has two key advantages compared with conventional leaseback schemes:

-The owner receives an annual income which is a share of the total profit from rentals earned by the residence, not a fixed rental income, so there is scope for year-on-year increases in the sums received;

- The owner can occupy his or her apartment for an unlimited number of weeks each year. The value of the weeks used by the owner is deducted at the end of the year from his or her share of the profits. The share itself is related to the size of the apartment as a proportion of the total accommodation within the residence.

“Owners can expect to see returns of around four per cent within the first couple of years and about eight per cent in the tenth year,” predicts Richard.

MGM is forecasting that, after four years, Le Padisha will have an occupancy rate of 90 per cent, which will generate net profits in excess of €2.3 million to be shared among the owners of the 38 apartments. MGM's recently completed development in Vallandry achieved 90 per cent occupancy in just one year.

Le Padisha occupies a prominent elevated position with panoramic valley views in the centre of Courchevel. It has been designed in a typically Alpine style and will be finished to unusually high standards, says the company.

Externally the residence will be clad in timber and local stone; inside the apartments will feature pine finishes with tiled and parquet floors. “With this residence MGM is setting new standards which will be hard to follow”, says Richard. “The furnishings and decoration of the apartments will be sophisticated and contemporary, but we will use traditional materials like as wood and stone.”

Facilities available within the residence will include a heated pool, jacuzzi, sauna, gym and steam rooms. A range of body treatments and massages also will be available.

MGM says that the scope for capital growth is ‘considerable' in the French Alps - typically between five per cent and 15 per cent per annum depending on location and demand.

“There is no doubt that prices will continue to rise in Courchevel 1850 as this is probably one of the most sought-after resorts in the Alps,” says Richard.

For more information about the Le Padisha and the leaseback partnership scheme, visit mgm-constructeur.com.