French house prices to remain stable

Even if most real estate professionals are likely to raise the probability of a sharp decline in housing prices in 2013, all observers do not share that view yet. In a recent study on the French property market, the research firm Xerfi excluded all published prices, preferring to rely on the relative stability of actual sale prices.

While the scenario of a significant drop in property prices is favored by a large number of professionals (Crédit Foncier predicting for 2013 and a decline of around -5 to -10%), some voices however carry a different tune. This is particularly the case for Xerfi, the economic research firm who does not hesitate to take against the general opinion in saying that "despite government measures to curb the recent rises, house prices in France will remain at a high level in the new build market as in the market for existing properties. '

In the study released recently Xerfi assert relative price stability for at least the next two years. These should register a marginal decline of 1.1% in 2013 and -0.4% in 2014. According to the firm the weakness in new developments should greatly influence the price as this level of new property building will not address the structural deficit of housing and help to limit price declines. '

If these figures are national averages, house prices should nevertheless adopt relatively disparate developments by region. While Paris and Ile-de-France, combining economic attractiveness and notable lack of new housing should see their prices remain at a high level, regions such as Alsace and the Rhône-Alpes will see a slight decrease in price owing to the larger numbers of new developments in those areas. John Busby of French Private Finance agrees with this, though does not think prices in the main ski stations will suffer. "The popular areas of France should remain stable due to the inwward investment by overseas buyers. French mortgage rates are at their lowest ever level which should maintain the flow of investment into these areas as buyers take advantange of the excellent long term French mortgage options available at 80% of the purchase price.

Overall house prices are likely to persist at this level for the medium term if sales volumes continue their downward trend. According Xerfi, we will have to wait until 2015 to see the beginnings of a recovery, both in regard to the price that the number of transactions.

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Where next for real estate in Paris?

The Depardieu Case has generated considerable commentary.

It is important to note that, beyond the “shallow” controversy triggered by inappropriate statements from some members of the Government, it is a real key issue. Sales of luxury properties in Paris have been dropping sharply since Francois Hollande’s election.

Preliminary reports for 2012 revealed a decrease of almost 50% in transactions where the price is higher than 2 million Euros and, a decline of less than 30% for sales between 1 and 2 million Euros. According to the agency Emile Garcin, the second semester of 2012 has already seen a spiralling drop of almost 50%.

What is the link with the Depardieu case? The flight to escape tax.

Charles-Marie Jottras, Head of Feau network (a large French real estate agent), recently confided to one of his colleagues:”Over the last seven months, sale mandates of real estate with a value higher than 1 million Euros have increased from 700 to 1200. I’ve never seen that in my 30-year career.” It has been confirmed by the Barnes agency that more than 30% of real estate properties, with an estimated price higher than 3 million Euros, offered for sale during the past few months, are linked to the tax exile of their owners.

As a consequence of this massive exodus, the number of real estate properties offered for sale on market has increased in a short time, whereas demand has correspondingly reduced. While our wealthiest citizens are dreaming about leaving France to set up abroad, foreign people are shown to be more and more hesitant to invest in French real estate. The client base of foreign investors accounts of 60% of real estate market for properties worth more than 3 million Euros. Thought it must be noted that these investors also invest in other capitals like New York or London. Real estate transactions for property worth more than 2 million Euros in Paris decreased by 38% between June and August 2012.

Wealthy Parisian owners are selling on a massive scale and foreign investors are leaving. This creates an increase of luxury real estate properties for sale in Paris and a growth of reserve stocks of almost 50%. According to supply and demand, it would be logical that prices drop in this industry, but it would appear that suppliers haven’t been ready to release the pressure. Nevertheless, some decrease in prices of around 5% has been reported.

Although luxury real estate prices remain below 10% in Paris in comparison to other top cities like London or New York, it would appear that current fiscal policy needs some work to boost investment into France for now in spite of some of the lowest French mortgage rates ever

John Busby of French Private Finance notes, "Fiscal uncertainty is not new for France. The Government of the day always makes changes. Hollande has made changes to please his back benchers with many comentators believing he does not know what he is doing.  The fundamentals for long term investment are there. Soft prices now, excellent long term interest rates with the prospect of inflation over the medium term. No wonder the average price for non-resident transactions has almost doubled".

 

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