The Future of Property Prices in France

By: Nick Dowlatshahi

The property market generally in Europe appears to be stabilising compared to the US market which appears to be in a bit of a crisis due to the sub-prime lending market. We have seen a marked slowdown in the Spanish property market and the UK market seems to have lost most of its steam now as well. This is likely to be pervasive over the next few years as unlike in 2004 when everyone predicted the same thing; today interest rates are that much higher as are property prices and the uptake of mortgages in the UK are also slowing while house repossessions are increasing. The effect of this is likely to be a stabilising property market with minimal capital growth and in some areas of the UK even price falls. Getting a mortgage in the US, Spain and the UK has always been relatively easy than when compared to France thus ensuring that a sub-prime crisis like we are witnessing in the US is highly unlikely in France. French rules on mortgage lending dictate that the mortgage applicant must be earning at least three times their monthly mortgage outgoings after taking into account all other loans. This means that although people are refused finance more often in France and the procedure of gaining a loan can often feel protracted it does actually benefit the economy and its property owners in the long run.

The new president Nicolas Sarkozy has clearly stated his wish to make the French economy achieve its full potential where it has failed to do so in the past. He also wishes to turn France into a nation of home-owners much like Thatcher did during her time in power in Britain. In France only 57% of the population currently own their own home compared to 70% in Britain and an impressive 84% in Spain showing there is plenty of room for growth here. He intends to achieve his dream by implementing a number of economic and tax reforms which are likely to encourage trade and increase Economic activity. These changes include but are not limited to the following-

1) Extending the 35 hour working week
2) Significantly reducing the amount of inheritance tax and even making spouses exempt
3) Allowing mortgage interest payments on your main home to be offset against tax
4) A shift away from direct taxation (such as income tax) to indirect taxes (such as VAT and environmental tax) with the result being an overall tax reduction of 4%

The effects of all these should increase demand for property and the propensity to invest in French property in the long term. By itself this does not mean property prices will increase but when you take into account that there is a housing shortfall of 400,000 properties across France each year this excess demand and under supply is bound to have a positive impact on real estate prices.

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