Paris house prices set to end upward streak
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.