Register - if you don't have an account

Yes! Sign me up for Global Property Guide's fortnightly email newsletter.

Login - for registered users

Forgot Password?
Explore destinations
continent map couldn't be loaded Pacific Europe & Russia North America Latin America Asia Africa Middle East Caribbean


Financial Overview


Property Search

Global Statistics

Regional Statistics

Aug 31, 2011

Dramatic French property price rises, but further economic recovery may be limited

France house prices

French house prices rose by 9.1% (7.1% when adjusted for inflation) in the year to end-Q1 2011, according to the National Institute for Statistic and Economic Studies (INSEE).

In Paris, house prices were up by 18% in the year to end-Q4 2010. The price per square metre of apartments in Paris also went up by 17.11% y-o-y to the first quarter of 2011, a huge leap.

Outside Paris:

  • In the Ile-de-France, where Paris is located, house prices rose 15.6% y-o-y to Q1 2011, to €5,290 per sq. m.
  • In the Petite Couronne (Little Ring), house prices rose 14.6% to €4,270 per sq. m. over the same period.
  • In the Grande Couronne (Large Ring) house prices rose 8.2% y-o-y to €3,050  per sq. m. during the year to Q1 2011.

Apartment prices in other major cities also went up during the year to the first quarter of 2011. In Marseilles, they rose by 7.2% y-o-y to Q1 2011. In Lyon, they increased 17%.

France is one of Europe’s better performing economies.  Its GDP is expected to grow by 2% in 2011, despite the debt crisis faced by its Eurozone.

Prior to the global recession, property prices had been rising steadily.  France has long been an interesting investment opportunity for foreign buyers because of low mortgage rates. Just recently, President Nicolas Sarkozy’s government dropped a proposed second home property tax for newly purchasing expatriates. The proposed tax, if approved, would have introduced a new 20% tax on second homes in France owned by non-French residents.

Some experts are still skeptical about the French economy’s recovery, considering the current Greek debt crisis, increasing inflation, and a public debt that accounted 82.3% of GDP in 2010, and is expected to reach 85.4% this year.

Economic constraints along with the crisis within the Eurozone will have an impact on real estate prices in France. Many experts say that the pace should slow down as economic events unfold.

Low yields, rent constraints

France’s house price boom lasted from 1997 to 2007, with double-digit apartment price rises almost continuously during the years 1998-2007. Low interest rates had boosted house prices up from 2001 to 2006, with annual house price increases peaking in 2004. But price rises ground to a halt from late 2007, with the inflation-adjusted price of existing dwellings falling 11.52% during 2008, under the impact of the global financial meltdown. France’s economy grew by a mere 0.3% during 2008, and contracted by 2.19% during 2009.

From 2000 to 2009, apartment prices in France rose by 110.03% (115% in Paris) - much more than the country’s rent index, which over that period rose only 29%. This brought poor rental yields, especially in Paris, which now has yields ranging from 3.17% to 4.10%, according to Global Property Guide Research (August 20, 2010). The rent index increased by 1.10% over the year to Q3 2010.

The development of France’s rental market is constrained by rent controls. Initial rents are freely determined, but can be revised only once a year and not more than the (new) INSEE rental index. In certain periods, the allowable rent increase has been below inflation. According to INSEE surveys, 93% of France’s landlords are private individuals. and not corporations.

The social housing sector has a serious impact on private rental market, especially as social sector rents declined from 1999 to 2001. The private rental market comprises about 21% of the housing stock while 17% belongs to the social rental market. There is also a relatively large “other” category at 6% including work-related residences.

France annual inflation graph

Paris’ strong price increases, however, are not expected to continue. France is implementing cost-cutting measures, and economic activity ground to a halt in October, due to rolling strikes and nationwide demonstrations, as workers and students protested against plans to increase the retirement age from 60 to 62, and the age for full pension from 65 to 67.

Stable mortgage market

France outstanding house loans graph

In France, over 80% of all owner-occupied dwellings are mortgaged, and more than 80% of housing loans are fixed rate. Due to the dominance of fixed rate mortgages, France’s housing market is therefore arguably less prone to sharp upturns and downturns. Despite the economic slowdown from 2008 to 2009, France’s mortgage market grew 3.89% to €738 billion. During the decade it has grown enormously, from 21% of GDP in 2000, to 37.9% of GDP in 2009. France’s mortgage market is the third largest in the EU, after UK and Germany.

France average price of dwellings graph

Historically low rates

New lending activity surged by 38.5% during the year to Q2 2010, according to the European Mortgage Federation (EMF). Lending by banks to households increased by 6.8% during the month of September 2010, in impressive contrast to last October’s growth of 2.39%.

France interest rates graph

Mortgage rates in France are at their lowest levels since World War II, with an average rate of 3.30%. This is due in part to low rates on long term government debt, now at their lowest level for 200 years.

In September 2008, the European Central Bank (ECB) started to reduce key rates, and rates for new housing loans also began to move down.

  • The average rate on new housing loans with initial rate of fixation (IRF) of more than a year moved down to 3.52% in September 2010, from 5.19% in December 2008.
  • Interest rate for loans with IRF of one year or less fell to 3.05%, from 5.38%, over the same period.

The TEC 10, an index used to set fixed interest rates, fell to 2.66% in September 2010, because of low inflation and investors flocking to safer investments such as government bonds.

‘With fixed rates falling, we have seen a noticeable shift in the types of mortgages people are ringing to discuss. Fixed rates are now the overwhelming choice amongst buyers,’ says John Busby of Athena Mortgages.

Restructured PTZ housing loan

Despite the financial crisis, The French government has actually expanded subsidized zero-interest loans (the prêt à taux zero - PTZ loan scheme), redefining it to cover an even wider range of beneficiaries, and extending the programme, which was intended to end in 2009, until 2012. PTZ+, which will take effect in January 2011, will replace three existing schemes, namely: PASS FONCIER loan, the current PTZ loan, and the tax relief on home loan interest.

The amount of credit available under the PTZ is based upon the house location, number of family members and the length of loan maturity.

  • To qualify for a loan in zone A areas, which include major urban areas like Paris, individuals should have an income of less than €31,250. Households with 5 family members or more should not have a combined income of more than €64,875.
  • Higher loans are now made available under the new PTZ (called PTZ+) to house purchases meeting the BBC (Low-Energy Building) standard, thus encouraging energy efficiency.
  • Under specific conditions, the period of loan repayment has been extended to 30 years.
  • The loan amount to first-time buyers of new homes in areas under pressure (zones A and B1) was increased. For example, families with 5 and above members may loan €359,000 under the PTZ+, in contrast to €285,000 in the old PTZ scheme. .

PTZ loans can be combined with a special housing loan that enables modest-income households to buy their own home (prêt à l’ accession sociale – PAS loans). Households entitled to these loans should have an income below a certain limit. and the building cost must not exceed a certain threshold. Recipients of PAS loans benefit from lower interest rates and a housing grant to cover part of the monthly payment.

Debt reduction plan

The French economy’s period of slow growth is ending, and the International Monetary Fund (IMF) expects France’s GDP will expand by 1.52% in 2010, and by 1.75% in 2011.

Nevertheless, France’s situation is worrying. Its national debt increased to 78% of GDP in 2009, up from 68% of GDP in 2008. France’s deficit was 7.5% in 2009, up from 3.2% in 2008. The European Commission plans to sanction countries that fail to control their debt. New rules proposed include the reduction of member countries’ total debt to 60% of GDP, In addition to the current deficit limit of 3% of GDP.

Although France’s condition is not as worrying as that of the PIIGS, it requires action. In the proposed 2011 budget, the government is planning to lower the fiscal deficit to 6% of GDP or €92 billion ($125 billion), down from 7.7% or €152 billion in 2010. The target is a deficit of only 3% of GDP in 2013.

To attain this goal, more than 30,000 civil service staff will be retired without replacing them. Likewise, the government also plans to withdraw €10bn worth of tax breaks. French Finance Minister Christine Lagarde has recently explained how extra cuts can save €40 billion:

  • Abolition of various economic stimulus measures will bring up to €16 billion
  • A 5% cut on state spending will generate €7 billion
  • Tax shelters will be curved, saving €10 billion
  • The resumption of economic growth will bring the government €7 billion in extra tax revenues

This is a relatively un-aggressive debt reduction plan, in contrast to the UK and Ireland. Time will tell who has got it right – the French moderates or the British extremists.



Be the first to comment on this article!

Login or Register to submit a comment!

In order to promote open and spam-free conversations, Global Property Guide moderates commetns on all articles. You can expect that your comment will be published within 24 hours.

News & Discussion
Compare Countries

Free Newsletter

Fortnightly updates from the global property arena directly to your inbox.

Email Address:

Connect to professional advice in France


Download free property reports from international research houses

Our Newsletter

Fortnightly updates from the global property arena directly to your inbox.

Manage subscriptions