Property Update

Author:Mr Andrew Charlier
Profession:Ince & Co
 
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Originally published in August 2009

Market overview

Although the French property market has suffered less from the

economic downturn than that in other European countries, there has

been a noticeable drop in property transactions over the past two

years. The French economy generally remains unstable and the French

are concerned about their spending power. As a result property

projects, be it sale, purchase or development, are temporarily

being put on hold. Businesses too are watching cash flow

attentively, and certain industry sectors (e.g. automobile) have

been making large-scale redundancies whilst others scale back

investment plans, resulting in reduced activity within the

commercial property sector.

The volume of residential property transactions fell by 20%

during the last half of 2008 and the first quarter of 2009, with

sellers choosing to wait for better conditions rather than face a

drop in asset values.

Property prices have not fallen significantly in France, unlike

other countries particularly Spain, the UK and the USA. This is

attributable to the slower rise in property prices over the last

decade and the fact that they did not reach the same excessive

levels or frenzied purchase behaviour as experienced by other

countries.

This price stability, despite the small decline during the

second quarter of 2008, is partly due to continued fairly low

interest rates (fixed rates at 4 to 5% on average) and flexible

loan conditions.

During the first quarter of 2009, residential property prices

decreased (- 0.4% for flats and -1.7% for houses) but not at the

rate of -6.5% that was experienced during the third and fourth

quarters of 2008. A national trend has also emerged; house prices

in the suburbs, outskirts of the big cities or properties in the

country are dropping, whereas one or two bedroom flats in town

centres remain stable.

The commercial real estate market has contracted recently in

line with the general economic slowdown. Rental values have

decreased, however they remain relatively high, particularly in the

Paris area (Ile de France).

State support

French authorities are offering a number of incentives in an

effort to boost the property market. The first of these incentives

was introduced in December 2008 through increasing the thresholds

for eligibility for the interest free mortgage (prêt à

taux zéro). More recently, in March 2009 the

"Molle" Law was passed, aimed at improving housing

conditions. The Molle Law contains several...

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