French real estate market is once again in a difficult situation, as the country tries to reduce unemployment and record budget deficits. Property prices in France fell by 1.63% in 2012. If you take into account inflation, we have a drop of 3.12% over the same period. In the fourth quarter of 2012, housing became cheaper by 1.27% compared with the previous quarter.
In the Ile-de-France, the most affluent and densely populated region of the country, the price of apartments fell by an average of 0.5% to €5,510 per square meter in 2012, informs the Global Property Guide. The cost of housing in Paris has decreased by 0.96% to €8,270 per sq.m., in Petite Couronne (Small Crown) - by 0.5% to €4,420 per sq.m. Prices in Grande Couronne (Great Crown) remained unchanged - €3,130 per sq. m.
During the boom times of the French market (1997-2007) prices rose by 150% (112.5% adjusted for inflation). However, the market began to sink in 2008 mainly because of the crisis. Prices declined by 3.82% in 2008 (-5.48% adjusted for inflation) and by 4.07% in 2009 (-4.41% inflation-adjusted).
The real estate market in France offset the loss in 2010, when prices jumped by 7.57% (5.82%). In 2011, the situation began to slow, and the cost of housing rose by only 3.66% (1.19%), mainly under the influence of the European debt crisis.
Demand indicators also appear ominous. In January 2013, the total number of sales in Paris fell by 44% compared to the same period in 2012. Also, the number of transactions decreased in regions of Petite Couronne (-28%), Grande Couronne (-25%) and Ile-de-France (-31%). In 2012, the total number of transactions in France fell by 11.9%.
The pace of construction is also slowing. In 2012, the total number of registered homes fell by 7.3% to 495,496 objects. Also declined by 17.8% the number of houses under construction.
It is expected that the French market will continue to decline in 2013, as the economic situation gets worse. The French economy did not grow in 2012, while GDP growth in the previous two years has averaged 1.7% per year. It is expected that in 2013 the nominal growth will be 0.1%.
The stability of the elite property market
Despite the general decline in prices, the stability observed in the real estate market on the Cote d'Azur, where luxury property is popular by the citizens of Russia, Germany, Great Britain, Belgium, Switzerland, Scandinavia and the Middle East. According to the FNAIM, in the Cote d'Azur in 2012 showed an increase in property prices by 0.7% - the second figure in France after the Ile-de-France (1.5%).
The most popular destinations on the Cote d'Azur are villas on the coast, apartments in Cannes, Nice, Antibes and other resort towns. Luxury apartments cost about €10,000 - €14,000 per square meter, and the price tag in prestigious locations (for example, on the Boulevard de la Croisette along the coast of Cannes) can be up to €40,000 per sq.m. Mansions on the Cote d'Azur are still cost €3-8 million, and some exclusive deals valued at €30 million, reports Property Investor Europe. Experts predict a further increase in the cost of housing on the Cote d'Azur, as demand exceeds supply now.
Mortgage
Mortgage market in France is one of the largest in Europe. From 2004 to 2007 the total number of loans issued annually has grown by 14%. The market has grown fantastically over the last decade from 22% of GDP in 2000 to 43.7% in 2011.
More than 80% of all housing in France acquired a mortgage, and more than 80% of the loans were issued at a fixed rate. Due to the dominance of fixed interest rates, the real estate market in France is probably less prone to sharp ups and downs.
The mortgage market climbed by 5.86% in 2011, but growth has slowed in the second half of the year. Banks have tightened conditions in the first half of 2011 after accepting the Basel III (the document of Basel Committee on Banking Supervision, developed in response to the deficiencies in financial regulation revealed by the financial crisis of the late 2000s), according to which the total amount of the loan is not exceed the borrower's income more than six times. Moreover, in recent years, banks are less likely to lend to non-residents and international investors. In particular this applies to banks affiliated with the Greek debt.
Tax reforms
New taxes introduced in 2012 had a negative impact on the French market. VAT on housing maintenance was increased from 5.5% to 7%, and benefits for repairing electricity had reduced to 15%. In addition, the tax on items less than 13 square meters has increased, and tax credit for the purchase of property has been reduced from 22% to 13% (in the future it will be reduced).
At the same time, in 2012, the program of free loans has been available for people, buying a new home for the first time, and for social housing tenants, who wish to buy their own property.
Problems in the economy
From 2004 to 2007, the French economy showed an annual growth of 2.3%. However, the drop was 0.08% in 2008 due to the global crisis. Real GDP fell again by 3.1% in 2009 - it was the most serious recession in France since the Second World War. Despite the worsening eurozone debt crisis, France's economy managed to show growth of 1.7% in 2010 and 2011. But in 2012 again were problems, as companies cut thousands of jobs and the president Francois Hollande struggled with the budget deficit. It is planned that the economy will grow by a symbolic 0.1% in 2013.
Now the government is trying to reduce budget deficit to 3%. In 2012, the French budget was drawn up with a deficit of 4.8% of GDP, before reaching the mark authorities planned 4.5%.
It is believed that in 2013 the French won't succeed in the fight against the deficit. It is expected that it will be at 3.7% of GDP and will not reached the level of 3% what the government wants.
Public debt rose to 90.2% of GDP in 2012 (€1.8 trillion) with a mark of 85.8% of GDP in 2011. Public spending in France accounts for 56% of GDP (the second figure in the European Union).
Another problem is severe unemployment (10.6% of the population), the largest figure since 1999. In February 2013, the number of unemployed persons increased by 10.8% to 3.187 million (the highest since January 1997). It is assumed that the overall unemployment rate will rise to 11% by the end of 2013.
Text: Ivan Ulitin, ee24.com