Housing market in France slowing substantially
French property prices lost speed in 2007, rising by only 3% during the year, according to FNAIM. These price increases reflect a substantial slowdown from the 7.2-15.5% range increases registered between 2004 and 2006.
The housing market is obviously experiencing a significant slowdown from its peak period of price increases in 2004. Apartments and houses both saw price increases in 2007, of 4.5% and 4.8%, respectively. But this is nothing much, compared to 2004’s growth rates of 17.8% for apartments and 12.5% for houses.
The average price of apartments rose to €3,092 per sq. m. in 2007, 103% higher their 2000 level, while detached house prices rose by 47.8% to €2,250 per sq. m.
Housing markets in the South East and the Ile de France were the strongest in 2007, while France’s South West was weak.
Recent Global Property Guide research indicated that this year, per sq. m. prices in Paris are around US$12,930 to US$18,070, expensive by international levels.
In particular, apartments in Paris’ Rive Gauche district (5th, 6th and 7th arrondissements) now cost €7,093 per sq. m., versus €5,400 in the East (12th, 19th, 20th), according to FNAIM figures. Our own Central Paris figures for the 6th-10th arrondissements are slightly higher, at between €6,600-€10,000 per sq. m., though the 120 sq. m. yardstick we normally use has a slightly lower figure (€6,667).
From 2000 to 2005, prices for apartments in Paris rose by 76.4%, lower than 86% for France. Aix-en Provence and Nice remain the most expensive towns to live in France outside of Paris. Using figures from the National Institute of Statistics and Economic Studies (INSEE) apartment prices in Paris have been moving a bit more slowly than France as a whole.
Robust presence of foreign purchases and government subsidy
For years now, France has been one of the countries with the most vibrant housing markets in the EU. Substantial house price increases have been going on since 1998 (only Ireland experienced a longer boom at 18 years or more).
One factor may be strong growth of purchases by non-residents. There appears to be a strong presence of foreign buyers in the South East. Thus, in Saint-Jean-Cap-Ferrat (Alpes Maritime) 64% of the buyers were from abroad, whilst in Ramatuelle (Var) it was 46%, at Villefranche-sur-Mer (Alpes Maritime) 55%, Chamonix (Haute-Savoie) 58%, Val-d’ Isère (Savoie) 33%, and 55% in Gets (Haute Savoie).
Outside of the South East, around 20% of sales in the Dordogne and Creuse are to foreign buyers, whilst it is 15% in the Gers and Charente, and 10% in many of the other areas of the West and South West.
The British continue to remain the largest buyers of French property, accounting for around 60% of all foreign buyers. The Russians are now also buying in France, although generally restricting themselves to more spectacular properties in the South East.
Another possible reason for the strong housing market is the amount of subsidies provided by the government; about 40% of new housing receives some sort of a subsidy. The increasing take-up from 1999 onwards of the so-called “Bresson” and then “de Roblen” schemes coincided with the rebound in housing prices. Subsidized zero-interest loans (the “prêt à taux zero” (PTZ) loans) are also now available to first-time buyers, and have recently been extended to middle-class buyers with up to €51,900 in resources (in the case of large families), and €25,000 in the case of singles.
“The introduction of these measures at the end of the 1990s, by greatly enhancing the profitability of buy-to-let investment in new housing, may have pushed up prices in this market segment, and by a process of contagion, contributed to a more general rise in housing prices,” noted a recent Banque de France research paper. The Banque de France notes that “a very widespread effect may…be expected when the schemes come to an end.”
Growing population
A rising level of immigration and relocation to France, especially from Britain and other EU states, has been revealed in the 2004 French census, which could have implications for the French housing market.
France's current population is cited as 62 million (51% female and 49% male) and will hit 75 million by 2050. In addition, the average size of French houses has been increasing in recent years, suggesting an increased need for comfort. Even ownership of two residences by pensioners (i.e., for purposes of spending winters in the city and summer in the country) is also on the rise.
These trends will affect housing, with the growing population causing an additional strain on the environment as demand for housing increases. If this continues it will mean the need for considerable housing development.
Construction output in France rose 2.8% in the year to November 2007, according to Eurostat. In 2006, construction of 415,050 dwellings began, slightly up on the 402,453 dwellings begun in 2005, and the 361,000 dwellings initiated in 2004. Construction is above the 320,000 dwellings that INSEE estimates to be necessary to address housing demand.
Geographically, it is the colonies that have contributed the most to the increase in population, in particular Reunion and Guiana. In Metropolitan France Languedoc-Roussillon, the Central Pyrenees, Provence-Alps-Cote d'Azur, Aquitaine and the West (Brittany and the Loire area) are the most prominent. On the other hand, regions which were long in decline are Auvergne and Limousin.
Between 1945 and 1970 the population shifted from the rural to the urban areas, while between 1975 and 1990 people moved to suburban areas which still kept them close enough to the large cities. From 1999 to today it seems that both are seeing an increase in population.
However, due to an ageing, increasingly-divorced population, the French housing market is somewhat supported by a long-term trend towards more households.
Rental market constraints
Rental market development in France is structurally constrained. Initial rents are freely determined but can be revised only once a year and not more than the (new) INSEE rental index. With house prices tremendously rising for the past ten years, the INSEE dwelling rents index rose by 1.36% annually to the fourth quarter of 2007, after rising by 1.59% in 2006, 1.66% in 2005, 1.59% in 2004 and 1.78% in 2003.
Mortgage rates
Mortgage terms have lengthened over the past few years, suggesting that buyers are having some difficulty meeting interest and repayment obligations. During the year 2006 30-year and 25-year loans emerged, accounting for 32% of new loans in 2006. The average mortgage term now stands at 20.5 years, according to FNAIM. Over 80% of all owner-occupied dwellings have mortgages attached to them.
The European Central Bank has continuously raised base rates to 3.75% (8 March 2007) and 4% by 13 June 2007, from 2.25% in 2005. The French housing market is somewhat less affected than other countries’ by such interest-rate rises, as only 20% of its housing loans are lent at variable rates. Nevertheless both short-term rates and long-term interest rates have risen, and fixed rate mortgages stand at 3.70% with 5 to 10 years initial period of fixation.
Sluggish economic growth
The overall strength of the French housing market has been surprising in view of the economy’s relatively sluggish GDP growth of 1.9% in 2007, in 2006 (2.0%), in 2005 (1.4%), 2004 (2.1%), 2003 (0.9%), and 2002 (1.3%).
Consumer spending growth eased to 0.4% in the fourth quarter, from the 0.8% in the third. A slower year-on-year inflation rate was recorded at 1.1% in 2007 from 1.7% in 2006.
Unemployment is high, too high to be dented by the modest economic recovery. It has hovered between 8.7% and 10% from 2000 to 2007.
The budget deficit is over 3% of GDP, in what is one of the world’s most highly taxed countries.
France’s adherence to its own brand of socialism puzzles observers. But at present it is still delivering the goods for most of the population, and the economy is working at fairly productivity levels.
No housing bubble, prices will simply stagnate
The Banque de France in 2007 antcipated a possible housing bubble. The Notaires de France, however, sees no sign of a collapse in the property market. Accordingly, in 2008 "prices will continue to rise to around the level of inflation. That remains particularly true for property hot spots and large towns. Nevertheless, in certain regions where economic activity is fragile, or where foreign buyers are absent, prices are likely to stagnate. A uniform rise in prices is over."
Likewise, FNAIM do not believe there is the prospect of a market crash in 2008, and forecast that, on average, prices will simply stagnate.
