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According to Cafpi(1) (leading French mortgage broker), buyers predominantly acquire a property for their main residence (90% of the total buyers). Also, “non” first time buyers seem to be the “winner” in this rather “subdued”- albeit turning toward the buyers’ side- French property market… Property “purchasing power” increased significantly in all major French cities between January 2012 and September 2013 (except in Lille) from +4.37% in Bordeaux to +12.79% in Nice, and Paris stands at +7.84%.
First time buyers impacted by the economic crisis:
The share of the “first time buyers” has decreased considerably since January 2012, from 53% to less than 1/3rd. The economic crisis makes it more difficult for them to save for a deposit. Additionally specific incentives for new built homes (main residency) have progressively died out.
A first time buyer borrows on average Euros 172 529 over 240 months (20 years), and the acquisition value represents 4.75 years of revenue. A non first time buyer borrows slightly more, Euros 187 123 over a shorter period -201 months (16.8 years)-, the acquisition value amounts to 4.12 years of revenue on average. The first time buyers tend to buy more new built homes (20% versus only 7% for the “non” first time) probably attracted by the free interest loan and in some areas, the reduced VAT at 7%.
Buy to let investors less active on the property market:
According to Cafpi, property investors’ share of the transactions has dropped sharply from 20% in January 2012 to 10% in September 2013(2). The significant increase in capital gains tax (CGT) from early 2012 partly froze the buy-to-let market, as the potential sellers postponed their selling decisions, thus slowing down the number of transactions. It seems that the positive CGT reform in place since the 1st September –deleting partly the additional CGT since early 2012- still has not produced its full effect. Additionally, the investors might be worried about the property law “Alur” (or draft law “Duflot”), which is due (among other things) to partly regulate the level of rent in French conurbations(3).
Buy to let buyers invest in the top 8 most active French conurbations:
The mortgage bank “Crédit Foncier” (4) gives additional data on the buy-to-let investors’ “profile”. His median income stands at Euros 65 680 per year. This is more than 3 times the French median income (Euros 20 720 in 2010). The typical investor is on average 46 years old, buys a 53 m2 (570 square feet) -1 bedroom- for an average of Euros 163 000, and borrow Euros 153 000 over 20 years. More than 2/3 of the investors do not have deposits in order to maximise the tax incentives. New built homes investments are generally located in distant geographical areas, while investment in existing homes will be made nearby. Investors preferably buy in areas with active buy-to-let market, where there is a relative scarcity of letting property on the market. Credit Foncier’s customers preferably invest in “Ile-de-France” (Paris area) which stands ahead at 15%, then follow “Haute Garonne” (Toulouse area) 11%, “Gironde” (Bordeaux region) 11%, the “Rhone” (area around Lyon) 7%, Herault 6% (Montpellier and surroundings), Bouches du Rhone (Marseille, Aix-en-Provence) 6%, Alpes-Maritimes 4% (Nice-Cannes). Real estate remains the preferred investment assets for 56% of the people polled by the Credit Foncier, well ahead of the financial markets and the secured savings (life savings insurance, savings accounts…). The tax incentives remain the main reasons for a property investment (68%), overwhelmingly prevalent when buying a new built home (81%, as tax incentives are very significant), than an existing home (23%). Investors’ motivation also derive from building up revenues for retirement (44%) and setting up a property protfolio (42%).
French fixed interest rates on mortgage remain historically low:
Finally, Cafpi reminds that interest rates on mortgage remain exceptionally low despite a slight increase over the summer. Fixed interest mortgages over 15 years stand approximately at 3%. A mortgage of Euros 180 000 over 20 years implies monthly repayment of Euros 1000. For the same monthly repayment, a French property buyer could only get a Euros 164 000 mortgage in January 2012.
Our advice: invest now with a long-term view:
Although “Alur” law may add some administrative burden for the renting process, many factors make the French property market more attractive:
- French Property prices at best have barely increased for the past 2 years (see our post “slight upswing in French property market…”), in any case, below inflation rate. Paris property prices have even been on the down side (see our post “Paris property price to decrease slightly…”), while London property prices are heating up and likely to go up even further with the new “5% deposit” government scheme. Thus Paris property price will look comparatively more attractive.
- Mortgage interest rates remain exceptionally low, in France you can get a 3% fix interest rate mortgage for 15 years contrary to the UK market where you get either a good variable “Tracker” rate or a poor 4 to 5 years fix interest rates, with a risk of an interest rate hike…
- Overall, property purchasing power has increased significantly (combination of low interest rate and almost stable property price)
- CGT reform will progressively have a positive impact, sellers coming back to the market, thus increasing the array of properties on offer, another positive factor for the buyers. See our previous posts “Capital gains tax reform on French property: latest updates (part 1)” and “Capital gains tax on French property: simulation shows significant tax reduction (part 2)”
- Past history shows that when a reform of the rental market does not work efficiently, it ends up being amended
(1)Cafpi is the leading mortgage broker in France www.cafpi.fr
You may access Cafpi monthly survey on:
(2)The constant decrease of property investors’ transaction has also been commented by one of the leading estate agent network “Century 21”. The network’s statistics reveal a decrease by 5.8% of the property investors in the 3rd quarter 2013, following the negative trends in the 1st semester (-6.1%) and in 2012 (-5.2%). This is particularly the case in Paris, where shares of buy-to-let transactions dropped from 12.2% in the 1st semester 2012 to 9.8% in the second semester 2012. The network estimates that 81 000 fewer homes were not bought by investors since early 2012 due to their partial withdrawal from the market. The network also added that investors have been re allocating part of their investments into the commercial property market. However, data issued by the “Crédit Foncier” mortgage bank reveals that number of overall transactions decreased by 14% between 2011 and 2012, while the buy to let transactions only decreased by 11% (no data for 2013…).
(3)In a nutshell, the rent could not exceed -by more than 20%- the “median” rent within a conurbation with more than 50 000 inhabitants. The “Alur” law has just been approved by the “National Assembly” (“Assemblée Nationale”), however it still has to be discussed by the “Sénat” later in October, which could amend the draft law, in this case it will have to be debated again by the “Assemblée Nationale”. The draft law should also implement a universal guarantee for non paid rent (GUL, “Garantie Universelle des Loyers”) to be financed by a contribution equally paid by landlords and tenants. This is widely criticized by the estate agents and most of the other property professionals.
(4)Credit Foncier http://www.creditfoncier.fr
You may access the Credit Foncier survey on buy-to-let investors at