Business model of the residences of tourism in France

In 2014, the France had 2 266 tourist residences representing a total of 183 143 apartments. They are most often located at sea (37% of residences) and mountain (30%), but also in the cities (23%) and in the countryside (10%). Each represents an average annual 31 000 nights. But according to the Federation of real estate developers (FPI), sales of homes in residences with services are declining:-11% in 2015 from 2014.

Under the French law, a residence can be classified "tourism residence" if three requirements are satisfied:

- include at least 100 beds,

-  rent at least 70% of the housing for a minimum of nine years,

- be run by one sole operator

The French public agency against fraud DGCCRF has investigated the compliance with the regulations. DGCCRF established the State of affairs of the investment market in the residences of tourism (lease-back) in France, by ensuring the loyalty of the information given to individuals wishing to invest in this market.

The business model of the residences of tourism in France has long offered a correct return in touristic areas. But now the overabundant offer of apartment led to a drop in rents.

One investor in ten no longer perceives all rents expected to repay his credit payments (according to the owners associations).

Today, co-owners victimsform association to defend themselves against the operators (tenant). The DGCCRF, meanwhile, continues its controls to combat misleading marketing practices of some professionals.

The legal and tax schemes of the residences of tourism involves three main actors:

- the investor,

- the developer / marketer

- and operator-Manager.

The owners have invested in tourism residences to enjoy tax exemption measures and to constitute a heritage and a supplementary income for their retirement. They receive a rent of the Manager to which they are bound by a commercial lease. However, the majority of controlled managers recognizes no longer be able to ensure payment. They pretend to be forced to heavily decrease the rent paid.

According to the DGCCRF, developers now take more into account the planned exploitation established by managers to determine the selling price of housing.

The DGCCRF investigators first analyzed the arguments of sale of internet sites and the marketers then, in a second phase, lease protocols collected and analyzed the problems faced by the main managers of tourist residences in their relations with the owners. To this end, investigators visited 20 lease-back properties, including 6 tourism residences. They also questionned some co-owners-investors.

Article L. 321 - 2 of the French Code of tourism requires operators of tourism residences classified to communicate to owners who request specific to their residence operating account. The operating  company has to communicate once a year to all co-owners its balance sheet and occupancy rate and the evolution of the principal items of expenditure and revenue of the residence.

However, many operating companies do not fulfill these legal obligations. One of the controlled residences had also failed to apply for the renewal of its classification.

Three major types of failure of managers have been identified during the investigation:

-          Unpaid rents

-          Late rents

-          renegotiation of rents during the first leases (in four controlled managers), renegotiation of rents on renewal of leases (five of the operating companies), with decrease  up to 70% of the amount of the initial rent.

Despite improvements, the complaints from owners disappointed by their investments in tourism residences are still many. Investigators of the DGCCRF made correct practices of several controlled professionals, when they were likely to be misleading.

It may be necessary to strengthen regulation, including the information of the buyer/investor in a leaseback scheme. During the operating period, the information of the co-owner-investor should be transparent and reliable (income, occupancy rate, management of common areas and facilities, and major maintenance tasks). These reflections will continue, with professionals, in a working group set up by the Directorate-General of companies (DGE) in coordination with the DGCCRF.