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According to the mortgage bank “Credit Foncier de France”, the property market for second home in France has been in a crisis state for some months*. Buyers are becoming particularly demanding, especially for the standard of the property. Additionally, price negotiations have become rather tough. The number of transactions has dropped significantly in areas where second home market is significant (e.g.: Provence -Var and Vaucluse “département”-, some part of Brittany and the West coast -Morbihan and Charente-Maritime “département”). However the mortgage institution also mentioned that the capital gains tax (GCT) reform, and more particularly the 25% additional rebate **, still has not had any effect on the property market. It might take a few months before the CGT reforms influences the market.
Regarding the property market in main conurbations (Paris and others) the prices have been slightly decreasing over a year , thus confirming the “notaires” data (at the end of Q2 2013). However, price trend might be partly biased considering the type of property sold in the current market environment. The Credit Foncier mentioned that properties with high quality standard (and well located) are sold with a fair price and within a good timeline. However, well located properties but of an average quality, are negotiated with a 3 to 5% rebate, while property with significant weaknesses might not find a buyer even with a 5 to 10% rebate. As the number of transactions has significantly decreased over the past 2 years (808 000 in 2011, 709 000 in 2012 and 630 000 forcasted for 2013), the “weak” price decrease might be artificially supported by a higher proportion of good quality properties sold in 2013 compared to 2012 and 2011. It might also explain why the “pap indice” (read our post “French property price in biggest cities up by 0.6% in September?”) have slightly increased since early 2013. Additionally, “meilleursagents.com” was also mentioning in its August review that the market was partly biased by the type of property on the market, while in September Paris property market was again on the downward side (read our posts “Is Paris property market heading toward a price slide?” “Paris property market on a downward slope in September”).
Concerning the market for newly built home, the building of new homes is at its lowest level for the past 5 years. Only 342 000 new homes were in progress over a year as at the end of August 2013. While sales volume remained really sluggish with a level of unsold at 101 000 homes at the end of June. However, most of the “not yet sold” new homes have not been built (as the requirement is to sell more than 50% of a new development before the developer can get a bank loan to finance the project read our post “upswing in number of new homes hiding long term worsening trend”). The number of new homes sold at the end of July cumulated 115 800 units over a year, one of the lowest number since the 1980ies. The volume increased in Q2 2013 but it was just a small hype within a depressed market. Additionally, the new energy standard (RT 2012, in place since 1st of January 2013) has increased building costs by 8 to 15%, which has been translated into the selling price.Nevertheless, property developers have managed to limit the price increase per new home at 4.5% by designing smaller properties. As expected, the share of fist time buyers has significantly decreased due to more limited financial incentives and the rather subdued economic environment. Although Credit Foncier recognises that the French states has recently put in place significant measures to boost the number of new homes to 500 000 units per year, the credit institution reckons that it may take some time to materialise. The main measure is to provide state owned land to the developer at a more affordable price (through a “bail emphyteotique”, a French version of the UK ground leasehold, but with softer renewal process and conditions), to allow more new homes at a more affordable price
Overall, the future outcome of the French property market remains uncertain at least within the next months, due to opposing factors. 2013 may be a landing phase; however positive factors are still quite tenuous:
- French economic recovery still remains rather weak and uncertain.
- Unemployment rate continue to increase, with negative forecasts.
- Property owners who would like to acquire another property are still not overly numerous. The number of property investors acquiring with the “Duflot” tax incentive (new homes scheme) increases rather slowly. First time buyers are finding increasingly difficult to get to the property ladder. Second home property market is in the doldrums.
- The new property draft law “Alur”, which is being debated by the Parliament, has triggered uncertainties in the property market. Notably the project to partly regulate the market rental value, and to implement a universal guarantee for unpaid rent have triggered lively debates in the property industry (we will write a separate post on Alur).
- The sales volume for new built homes continues to shrink…
- Volume of new mortgages have increased in Q2 2013, which is a rather positive trend.
- Measures from the home Minister to increase significantly the number of newly built homes at an affordable price, will not impact the market in the short term.
- There is a small increase in mortgage interest rates going on, further interest rate trend might be one of the key factors for a positive or negative outcome of the French property market.
*Credit Foncier de France www.creditfoncier.fr
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** Read our articles on the capital gains tax reform: