French Property Outlook 2014
Paris apartment prices
In January 2014, there was a slight increase in prices after 6 months of consecutive price softening however this is mainly regarded as a seasonal effect and the outlook for further price reduction in 2014 continues. A 3 to 5% average decrease is often cited among the agents we speak with. Unfortunately, this must be taken with a grain of salt. These figures reflect the average of the overall market – not the subset of the French properties most of our clients would like to buy (great light, nice entry, logical layout, upper floor, good location, etc.) The apartments with “good bones” have seen only a slight reduction if any. There is a bit more room for negotiation in Paris real estate over 1.5 million euros.
French real estate prices
The property market in the rest of France is also trending towards a slight average decrease however ups and downs vary by locale. In Q3 of 2013 statistics measured, houses lost value more than apartments (-2.3% for houses vs -1% for apartments annually.)
What is the impact of foreign buyers in France?
Interestingly enough, almost 70% of foreign buyers already live in France and more than 30% of non-resident buyers are French expatriates. According the latest statistics from the French Notaires report, non-resident foreigners accounted for less than 2% of French property buyers over the 2009-2013 period: 2% in the French provinces and 1% in the greater Paris region, although their proportion increased to 3% in Paris itself.
In the greater Paris region, the Italians are still the largest group of Paris apartment buyers at 25%. The next largest group is the United States with 5%. The British are very strong French home buyers in northwestern France. If you look at the pre subprime - Lehman Brothers crisis period (2002-2007), British French property buyers have sharply dwindled while the number of Belgian French home buyers has increased most regions. The Germans are still curiously absent from the French property market.
What will influence the French housing market in 2014 prices?
1) Credit availability
French banks have made it clear that they are less interested in lending French mortgages this year and very interested in opening investment accounts. This is mainly driven by a need for profitability (French mortgages are often loss leader products.) The second reason is increased capital requirements for banks post crisis. Banks in France are now required to have more capital reserves and therefore have less money to lend. Less lending can lead to French property price softening.
2) Tax on property transactions
The transaction tax (stamp duty) on property sales has increased this year up to 0.7%. This is not expected to have a major impact as the effect is market wide and relatively small.
3) Taxation of capital gains in 2014
In the wake of the dramatic change to the rule to exonerate capital gains on second homes held more than 15 years to 30, then the addition of social charges for non-resident sellers, the French government has come back with a special deal to reduce this tax by 25% for transactions completed by August 31, 2014. This is expected to create a mini rush of sales and allow a bit more room for price negotiation as the deadline draws near.