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Last Updated: Sep 15, 2014




The French housing market remains in the doldrums as house prices continued its declining trend. However, demand is seen to rise in some areas as home sales transactions improved in the first half of 2014.

House prices in Metropolitan France had its ninth consecutive quarter of year-on-year declines, as it fell by 1.21% during the year to Q2 2014, according to the National Institute for Statistical and Economic Studies (INSEE). When adjusted for inflation, house prices fell by 1.83% over the same period. On a quarterly basis, house prices in Metropolitan France remained the same as the previous quarter in Q2 2014.

House prices continue to drop in Paris, with apartment prices declining by 1.22% (-1.84% inflation-adjusted) to €8,120 (US$ 10,269)  per square meter (sq. m.), its fifth consecutive quarter of price drop, during the year to Q2 2014, according to the figures posted by La Chambre des Notaires de Paris.
  • In Ile-de-France, the wealthiest and the most populated region in France, the average apartment price fell by 1.47% y-o-y (-2.08% inflation-adjusted) to €5,380 (US$ 6,804) per sq. m. in Q2 2014.
  • In the Petite Couronne (Small Crown), the average price of apartments fell by 1.36% y-o-y (-1.98% inflation-adjusted) to €4,340 (US$ 5,488) per sq. m.
  • In the Grande Couronne (Great Crown), the average price of apartments dropped by 2.28% y-o-y (-2.89% inflation-adjusted) to €3,000 (US$ 3,794) per sq. m.

During the housing boom (1997-2007) French house prices surged by 150% (112.5% inflation-adjusted). However, the housing market started to weaken in 2008, mainly due to the global crisis. House prices fell by 3.82% (-5.49% inflation-adjusted) in 2008 and by another 4.17% (-4.52% inflation-adjusted) in 2009.

The housing market bounced back strongly in 2010, with house prices rising by 7.59% (5.85%). In 2011, the housing market started to slow, with house prices rising by just 3.76% (1.29% inflation-adjusted), mainly due to the adverse impact of the eurozone debt crisis. In 2012, house prices dropped again by 1.99% (-3.48% inflation-adjusted) from a year earlier. The downward trend continued in 2013 as house prices fell by 1.94% (-2.57% inflation-adjusted).

In contrast to the price drops, home sales showed some improvement in the first half of 2014. In August 2014, the total number of existing homes sold over the 12 months rose by almost 8% to 732,000 units from the same period last year, based on the figures from the Conseil général de I'environnement et du développement durable(CGEDD).

It is also observed that demand is picking up in some areas. In Q2 2014, the total number of existing apartment sales in Paris rose by 12% y-o-y, according to La Chambre des Notaires de Paris.  Both Ile-de-France and Grande Couronne have only a slight increase of 1% y-o-y over the same period, while Petite Couronne’s apartment sales fell by around 7% y-o-y.

The sales volume of existing houses was even higher as compared to apartments. The volume of home sales in Ile-de-France rose by 5% during the year to Q2 2014. The increase in home sales was also observed in Grande Couronne (6%) and Petite Couronne (2%).

Residential construction activity has declined in the previous year. In 2013, the total number of house permits issued in France fell by 12.6% y-o-y to 432,885 units, while the total number of dwelling starts dropped by 4.2% y-o-y to 331,867 units, according to the Ministère de l’Écologie, du Développement Durable et de l'Énergie.

The slump in the construction market was worsened by the new rental law early this year that caps rents in expensive areas (such as Paris), to make rents more affordable. This has pushed the construction market to its historical low in more than 15 years. The total number of authorized dwellings fell by 13.1% to 255,839 units during the year to August 2014. During the same period, the total number of houses started also dropped by 13.2% to 188,862 units.

Based on the Standard and Poor’s (S&P) forecast, property prices in France are expected to drop by 4% in 2014 but will eventually rise by 1% and 2% in 2015 and 2016, respectively. S&P remarked that the French market is resilient, following the country’s rising unemployment and weak economy.

France house pricesIn September 2014, a new residential property index was launched called the LPI (Les Prix de l’Immobilier) index. The LPI index is a weekly property index in France, designed by Michel Mouillart, a professor of economics at the University Paris-Ouest and director of the Housing Credit Observatory (CSA). The index aims to show close-to-real time house price changes, which allow buyers and sellers to monitor the trends in the current residential real estate market. The LPI will use data from sources such as banks and financial institutions including Sogeprom, Gecina, Crédit Foncier, as well as from Syndicat National des Professionels Immobiliers (SNPI), the national syndicate for real estate prices.

Analysis of France Residential Property Market »


RENTAL YIELDS
Last Updated: Jul 13, 2014



Gross rental yields from apartments in Paris are poor, at around 3.5% for both small and big apartments.

The average price per sq. m. of apartments ranges from EUR 11,000 to EUR 12,000. Smaller apartments tend to cost more.

The average monthly rent per sq. m. ranges from EUR 32 to EUR 38. Smaller apartments also tend to cost more.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Jun 13, 2012



Rental Income: The effective rate of tax on gross rental income accruing to non-resident foreigners is likely to be around 10.00% on an income of €1,500/month, according to calculations provided by Anthony & Cie.

Capital Gains: Capital gains are generally taxed at 19%. Capital gains tax is levied at 33.33% for non-EU citizens.

Inheritance: French private international law uses the standard double rule on inheritance: the law of the deceased’s domicile applies to moveable assets, and the law of the location of the property applies to immoveable assets.

Residents: French residents are taxed on their global income at progressive rates, from 5.5% to 41%.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Nov 27, 2012



Round-trip transaction costs in France can range from 8.38% to 29.41%. New properties have the highest costs because of the 19.6% VAT but this is slightly offset by a lower registration fee. Real estate agent fees range from 3% to 10% typically split between buyer and seller.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: May 25, 2006



French tenancy law is very pro-tenant.

Rent: Though the initial rent can be freely agreed, the rent can only be revised once a year, and not more than the increase in the (new) INSEE rental index. In combination with a highly restrictive contract structure, this means that rentals of old apartments have tended to drag well behind new rentals and prices.

Tenant Security: An unfurnished property contract has, as a minimum, a three-year term, though furnished property contracts may be for one year. In both cases, even when the contract ends, the owner can only recover the property if he or a family member intends to live there, or he intends to sell. In addition, eviction through the legal system takes a long time.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Sep 15, 2014


Slower growth awaits by end of 2014

France gdp inflationFrom a slow 0.8% y-o-y growth in Q1 2014, France’s economic growth slowed even more in the second quarter posting a meagre 0.1% y-o-y growth, the lowest y-o-y growth since Q1 2013, according to the figures of the National Institute for Statistical and Economic Studies (INSEE). On a quarterly basis, France’s economy remained flat for the second consecutive quarter in Q2 2014. The stagnation in the second quarter was due to the offsetting of the growth in the domestic demand and the decline of the external sector.

From 2004 to 2007, the French economy expanded by an average of 2.3% per year. However, the economy contracted by 0.08% in 2008, due to the global crisis. Real GDP declined again by another 3.1% in 2009, France’s sharpest recession since World War II. Despite the worsening eurozone debt crisis, the French economy managed to expand by 1.7% in 2010 and by another 2% in 2011.

Yet the French economy recorded no growth in 2012, as firms slashed thousands of jobs and President Francois Hollande squeezed the budget deficit, according to INSEE. In 2013, real GDP growth was estimated at a meagre 0.1%. “This is obviously not enough,” said French Finance Minister Pierre Moscovici.

Due to the disappointing figures in the first two quarters, France’s finance minister Michel Sapin, reduced the government’s growth forecast for 2014 from the previous estimate of 1% to around 0.5%. In 2015, economic growth is expected to be at around 1%.

Sapin wrote in an opinion article in the daily Le Monde, “With zero growth in the second quarter, thereby extending the stagnation we saw in the first, our country is slowing down and will not achieve the one-per cent growth observers were predicting three months ago”.

The INSEE also slashed its 2014 economic forecast from to 0.4% from last June’s forecast of 0.7%. INSEE noted that business confidence levels in France were even lower than in Spain and Germany. France’s expected growth in 2014 is only half of the bloc’s economic forecast of around 0.8%, indicating that the country might drag the recovery in other major eurozone economies.

Aside from low growth in 2014, INSEE is also expecting that unemployment in the country will rise further up to 10.3% by the end of 2014, higher than the previous estimate of 10.2%. High unemployment is also one of France’s major problems. As of July 2014, unemployment rate was at 10.5% from 10.2% in July 2013, one of the highest increases in the eurozone, based on the Eurostat figures. According to the labor ministry, the total number of unemployed persons rose by around 26,000 to 3.4 million people in July 2014.

In August 2014, annual inflation slightly eased at 0.4% as compared to the 0.5% recorded in July. The rate was below the 0.9% inflation recorded in the same month last year.

Public debt is expected to hit a record 95.1% of GDP this year, up dramatically from 85.8% of GDP in 2011, and far higher than previous estimates.  France’s public deficit reached 4.1% of GDP in 2013, down from 4.8% of GDP in 2012 but higher than its EU-agreed target for 2013. The government aims for a 3.6% of GDP deficit this year, by tightening spending of local authorities and ministries. About €15 billion is expected to be saved this year through austerity measures.

In May 2012 Francois Hollande became the country’s first Socialist president since Francois Mitterand (1981-1995), beating incumbent Nicolas Sarkozy. His government is now struggling with weak economic growth, poor competitiveness, a record high jobless rate and overall economic uncertainty.

In August 2014, France entered a political turmoil forcing President Francois Hollande to overhaul his ministerial team for the third time in two years. It was when Prime Minister Manuel Valls presented his government resignation, after the political crisis triggered by Economy Minister Arnaud Montebourg who demands to end austerity policies imposed by Germany.

In an interview with Le Monde, Montebourg demanded a change in policy direction that includes a fiscal stimulus to boost growth. He also mentioned that France shouldn’t be “slavish” and “dogmatic” in pursuing deficit cuts since those policies only leads to higher unemployment.

During that time, Hollande, who was suffering an all-time low approval rating of 17%, then asked Valls to form a new government, which is “consistent with the direction set for the country”. In the new French cabinet formed by Valls, Montebourg was ousted in the reshuffling and was replaced by Emmanuel Macron, a deputy secretary general at the Élysée Palace and a former investment banker at Rothschild, to be the new Economy Minister. Michel Sapin, a career politician, was also appointed as a Finance Minister.

Despite changing the government, there was little change in the direction of economic policies that are said to have led to economic stagnation in the recent quarters. “He is changing the government without changing the direction of policy, which is a bad thing,” according to Jean-Paul Fitoussi, a professor of economics at the Institut d'Études Politiques de Paris. Fitoussi also stated that the government should be reactive to the country’s stagnant growth.







  • Low effective rental income tax
  • High yields in Paris
  • Global political powerhouse
  • Moderate to high transaction costs
  • Pro-tenant rental market
RESIDENTIAL PROPERTY FACTS
Price (sq.m): €11,229 For a 120 sq. m. property, usually an apartment.
Rental Yield: 3.63% For a 120 sq. m. property, usually an apartment.
Rent/month: €4,074 For a 120 sq. m. property.
Income Tax: 10.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 16.30% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 33.30% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Strongly Pro-Tenant Rating is based on a detailed study of each country’s law and practice.

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