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According to the last CGDD* survey, the second quarter 2013 recorded a slight increase in the number of newly built homes sold to private individuals (+ 2.2% for flats from 20.150 units in Q2 2012 to 20.526 in Q2 2013, +5.6% for houses from 2.110 units to 2 .). However the trend remains very short of 2010 level when more than 30.000 new homes were sold in the second trimester.
Inversely, the number of homes offered on sale by the property developers decreased sharply by 21% from 35.060 units to 27.650. The developers are striving to reduce the number of home not yet sold which remains at very high level (more than 100 000 units). This high level of stock is reflected by a long commercialisation time span of 4.6 quarters. However, 60% of homes not yet sold have not started to be built, 35% are work in progress and only 5% have been fully built. Following the property crisis in France in the early 1990ies, property developers cannot start building new estates as long as at least 50% of flats/houses have been sold. This is a prerequisite for getting a bank loan to finance a new property development. Therefore, the risk of a Spanish scenario in France is completely excluded.
The FPI** recorded similar trends. The federation’s members sold 16 465 flats in Q2 2013, an increase by 10.4% compared to a year ago, thanks to a boost of “investors” acquisitions by 22.6% probably coming from a better understanding of “Duflot” tax incentives and very low interest rate on mortgage. The FPI mentioned that this upswing remains within an overall gloomy trend. Thus, the number of flats sold during the first semester 2013 was lagging behind the heydays of 1st semester 2011 by 17.5% and 2010 by 30.6%. Additionally the interest rates are going up again, and the uncertainty coming from the new reform “Alur”*** planned by the French house minister (“ministre du logement”), may impact negatively the number of new properties sold to investors during the second half of 2013.
Similar to the trend calculated by the CGDD, the number of flats offered on sales by the FPI developers, decreased by 22.4% from the 1st semester 2012 to the 1st semester 2013, showing again that the developers are striving to decrease the number of their “unsold” flats.
The overall number of homes to be built this year (including homes benefiting from state support with lower rent, block of flats sold to institutional investors, estates with services…) should reach 300 000 units, very far behind the 500 000 government target. In any case, the current level of newly built homes falls short of the population growth and social transformation in France. Paradoxically, less and less people are buying new homes. So where is this striking paradox coming from? For the past years building lands have become scarcer and more expensive. Additionally a creeping inflation in construction cost has had a significant impact on the selling price per m2 up to 2011/12. Strengthening of construction standard of which stringent requirements for more energy efficiency might be part of the reason for the creeping inflation…Confronted by a sharp reduction in activity, the developers are striving to adapt to this new environment, while the French state implemented measures to make state owned land more easily available. Average price per square meters in France for newly built homes decreased by 2.6% in Q2 2013 compared to Q2 2012, from 3 955 to 3 841 Euros, however still a very high figure for most of the persons who wish to buy their main residency especially compared to the average salary in France. Additionally, the constant change in tax and regulation environment, more specifically the uncertainties surrounding the capital gains tax on building land (see our post “time to buy building land in France?”) is a real matter that the authorities may have to consider. There is also a balance to be found between the government target on one side, the local authorities and the environment constraints on the other side, as in France the mayor & town hall council hold significant power for delivering planning permission.
CGDD*: Commissariat General au Developpement Durable (http://www.statistiques.developpement-durable.gouv.fr) French Ministry for ecology, energy and sustainable development. You can read the latest new homes reports on (in French):
FPI**: Federation des Promoteurs Immobiliers, Property developers federation only dealing with flats (http://www.fpifrance.fr)
Alur reform***: will involve many aspects of the property market. Concerning the rent pay by the tenants, it might not be 20% higher than a “reference” average rent. The rent inflation rate would not exceed an index calculated by INSEE (national statistical office) every trimester. The reform is to be discussed by the Parliament in September and October and should be in place at the end of 2013 or early in 2014.