House prices in Metropolitan France fell by 1.63% in 2012 from a year earlier, the third consecutive quarter of year-on-year declines, according to the National Institute for Statistical and Economic Studies (INSEE). When adjusted for inflation, house prices actually dropped by 3.12% over the same period. House prices dropped by 1.27% (-1.51% inflation-adjusted) in Q4 2012 from the previous quarter.
In Ile-de-France, the wealthiest and the most populated region of France, the average apartment price dropped by 0.5% to €5,510 per square meter (sq. m.) in 2012 from a year earlier, based on figures released by La Chambre des Notaires de Paris.
- In Paris, apartment prices dropped by 0.96% (-2.46% inflation-adjusted) y-o-y to an average of €8,270 per sq. m. in 2012.
- In the Petite Couronne (Small Crown), the average price of apartments fell by 0.5% y-o-y to €4,420 per sq. m. in 2012.
- In the Grande Couronne (Great Crown), the average price of apartments was unchanged at €3,130 per sq. m. in 2012 from a year ago.
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% (-5.48% inflation-adjusted) in 2008 and by another 4.07% (-4.41% inflation-adjusted) in 2009.
The housing market bounced back strongly in 2010, with house prices rising by 7.57% (5.82%). In 2011, the housing market started to slow, with house prices rising by just 3.66% (1.19% inflation-adjusted), mainly due to the adverse impact of the eurozone debt crisis.
Demand is also waning. In January 2013, the total number of existing homes sales in Paris plunged by 44% from the same period last year, according to La Chambre des Notaires de Paris. Likewise, sales of existing homes in Petite Couronne (-28%), Grande Couronne (-25%) and Ile-de-France (-31%) all fell over the same period.
In 2012, the total number of existing homes sold in France fell by 11.9% y-o-y to 709,000 units, according to the Conseil général de I'environnement et du développement durable (CGEDD).
Construction activity is also down. The total number of authorized houses in France fell by 7.3% to 495,496 units in 2012 from the previous year, according to the Ministère de l’Écologie, du Développement Durable et de l'Énergie. Likewise, the number of houses under construction also dropped 17.8%, to 346,463 units in 2012 from a year earlier.
France’s housing market is expected to remain depressed in 2013, as economic conditions worsen.
The French economy saw no growth in 2012, after an annual average real GDP growth rate of 1.7% in 2010 and 2011. In 2013, the economy is projected to grow by a meagre 0.1%.
Analysis of France Residential Property Market »
These are quite disappointing returns for investors. However, they are not unlike the rental returns on properties in other capital cities in Europe. This is an epoch of low yields and high prices, which the housing crisis and its aftermath has done almost nothing to dent.
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 deceasedís 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%.
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.
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% both in 2010 and 2011.
Overall, the French economy recorded no growth in 2012, as firms slashed thousands of jobs and President Francois Hollande squeezed the budget deficit, according to National Institute for Statistical and Economic Studies (INSEE).
Real GDP declined by 0.3% q-o-q in Q4 2012, after rising by 0.2% in Q3, and declining by 0.1% both in Q2 and Q1 2012. In the first quarter of 2013, the economy is expected to barely dodge recession with a 0.1% real GDP growth forecast, according to the Bank of France.
The French economy is projected to grow by a meagre 0.1% in 2013, according to the Organisation for Economic Cooperation and Development (OECD).
The government is now struggling to bring the country’s budget deficit down within the 3% threshold. In 2012, France’s budget deficit stood at 4.8% of GDP, overshooting the government target of 4.5%, according to figures released by INSEE.
France is expected to miss again its budget deficit target in 2013. The deficit is expected at about 3.7% of GDP this year, higher than the 3% target.
Public debt rose to about 90.2% of GDP in 2012 (€1.8 trillion), up from 85.8% of GDP in 2011.
The country’s public spending, currently at 56% of GDP, is the second highest in the EU.
France’s high unemployment is another problem. The jobless rate had reached 10.6% in Q4 2012, the highest level since Q2 1999. In February 2013, the number of unemployed persons in France rose by 10.8% y-o-y to reach 3.187 million, the highest since January 1997.
The overall unemployment rate is expected to rise to 11% by end-2013, according to the OECD.
The country’s inflation rate decelerated to its lowest level in three years to 1.2% in February 2013, from 1.4% in the previous month, according to INSEE.
Francois Hollande beat incumbent Nicolas Sarkozy in May 2012 to become the country’s first Socialist president since Francois Mitterand in 1981-1995. Reducing the budget deficit and providing jobs are the top priorities of President Hollande. However, his government is now struggling with weak economic growth, poor competitiveness, record high jobless rate and overall economic uncertainty.
Despite this, President Hollande refused to undertake additional austerity measures this year, arguing that it would only aggravate the already bad situation in the country.