Paris house prices set to end up­ward streak

The Pak Banker - - 6BUSINESS -

Government sup­port for the hous­ing in­dus­try ranges from lodg­ing sub­si­dies for stu­dents to tax breaks for ren­o­va­tion works and pub­lic con­struc­tion, which to­talled 45 bil­lion eu­ros ($59 bil­lion) in 2011, or 2.25 per­cent of gross domestic prod­uct. Hol­lande is with­draw­ing some of that help as Europe's sec­ond-largest econ­omy is on the brink of a third re­ces­sion in four years, hurt­ing prop­erty in­vestors such as Bouygues SA (EN) (EN).

A French na­tional flag flies near apart­ments in Paris. The av­er­age price of pre­vi­ously owned apart­ments in the French cap­i­tal fell 2 per­cent in the fourth quar­ter of 2012 from the pre­vi­ous three months, when val­ues peaked at a record 8,440 eu­ros per square me­ter, ac­cord­ing to Paris no­taries and government statis­tics of­fice Insee.

"It's prob­a­bly the trig­ger for a price de­cline which could reach 30 per­cent to 40 per­cent in five to 10 years," Pierre Sa­batier, chair­man of PrimeView, a Paris­based com­pany of­fer­ing re­search in ar­eas such as real es­tate, fi­nan­cial mar­kets and de­mo­graphic devel­op­ment, said in an in­ter­view. On top of government's bud­get cuts, the mar­ket will suf­fer be­cause of an ag­ing pop­u­la­tion and stricter mort­gage rules, he said.

Amid the worst eco­nomic cri­sis since World War II, French hous­ing prices in the last decade out­paced growth in house­hold in­comes, spar­ing France from a sim­i­lar prop­erty crash as in Spain, Ire­land and the U.K. In Paris in par­tic­u­lar, prices have surged as house­holds fled fall­ing stock mar­kets and used real es­tate as a haven. In Lon­don, prices have re­bounded 11 per­cent since 2009 and are still 17 per­cent be­low a 2007 peak. Madrid hous­ing prices are down a third from 2007 records.

Hol­lande, a So­cial­ist and the coun­try's most un­pop­u­lar French leader in more than 30 years, needs to find an ad­di­tional 5 bil­lion eu­ros in spend­ing cuts next year to keep shrink­ing the bud­get deficit.

The French Pres­i­dent has raised the cap­i­tal-gains tax on real es­tate as well as in­come and wealth levies last year, fol­low­ing sim­i­lar moves by his pre­de­ces­sor in 2011. The pres­i­dent also tight­ened re­quire­ments for tax re­duc­tions for buy-to­let in­vest­ments and in­ter­est-free loans for first-time home buy­ers, in­creased taxes on va­cant prop­er­ties, and is con­sid­er­ing cap­ping rents.

The av­er­age price of pre­vi­ously owned apart­ments in the French cap­i­tal fell 2 per­cent in the fourth quar­ter of 2012 from the pre­vi­ous three months, when val- ues peaked at a record 8,440 eu­ros per square me­ter, ac­cord­ing to Paris no­taries and government statis­tics of­fice Insee. The num­ber of sales slumped 21 per­cent in the quar­ter from a year ear­lier.

The prospect of lower prices is al­ready hurt­ing de­mand. Res­i­den­tial prop­erty reser­va­tions at Bouygues (EN)' real es­tate unit fell 30 per­cent last year. To re­vive sales, Bouygues Im­mo­bilier is now of­fer­ing a dis­count of 7,500 eu­ros un­til April 14 for five-room apart­ments it plans to build. The com­pany will also pay the trans­ac­tion tax that's nor­mally paid by the buyer.

Bouygues (EN), which also owns tel- evi­sion and phone as­sets, fell 1.7 per­cent at 9:08 a.m. in Paris to­day, eras­ing this year's gain and valu­ing the com­pany at 7.2 bil­lion eu­ros. The bench­mark CAC 40 in­dex was down 1.9 per­cent.

While real es­tate in­vestors may suf­fer, other peo­ple will ben­e­fit from de­clin­ing real es­tate prices, ac­cord­ing to Lau­rent Quignon, an econ­o­mist at BNP Paribas.

"To at­tract work­ers to cities like Paris, em­ploy­ers have been forced to of­fer big­ger salaries," he said in an in­ter­view. "Ten­ants also had to save to pay for their rent, which was detri­men­tal to con­sump­tion," he said. Paris home prices have tripled since 2000.

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