French elections and the property market

I was recently asked to comment on the effect on the French property market of the 2012 elections compared with what happened in 2007, as there is a belief - I think unfounded - that everything is on hold until after May 2012.

Looking first at what commentators were saying at the start of 2007, the principal concerns seems to have been about interest rates and the policies of the European Central Bank, combined with statements that the French housing demand continued to be ahead of supply. Note that this was just ahead of the sub-prime crisis and the eventual collapse of Lehmann Bros bank in the USA (September 2008) which sparked off the current crisis.

Although some commentators spoke of 2008 being l'année de rupture when the spiral of rising property prices would be finally halted,  some speaking of a 25% drop till 2010, in the event prices fell by an average 3% in 2008 and 7% in 2009, but rose again from 2010.

Coming to 2012, Notaires de France have just announced 783,000 property sales completed in 2011, slightly down on previous years. However L'Observatoire crédit logement CSA any slowdown in 2012 can be explained by the ending of the no-interest deposit scheme (PTZ) which ended on 1 January and continuing general concerns - by both borrowers and lenders - about unemployment. They note that lenders are now insisting on the 33% ability-to-pay rules and even those in permanent jobs may be refused credit if the bank considers that their employer is in difficulty!

Some banks however - including Banque Populaire, BNP and LCL 5Crédit Lyonnais) - are pursuing 'aggressive lending policies' as a way of attracting new business. Interest rates remain stable and the 'loss of France's triple AAA rating appears to have had no practical effect'.

It is hard to understand the caution of potential buyers in this pre-election period. All the major parties have included statements about the need to build more social housing and free-up surplus state land and buildings for this purpose. There is also talk, even by the UMP of M Sarkozy, about capping excessively high rents that are perceived as being above the market rate. The UMP have also passed a law to allow additional construction of up to 30% on existing sites - such as adding an extension to your house - to encourage families to house their aging parents and allow the latter to vacate a larger property that could be used by a family.

France still suffers from a chronic housing shortage, as families break up and re-form, and more people choose to live alone; while at least 2 million homes are considered to be below acceptable standards and need to be replaced.

I have discussed the French property market in depth in the February 2012 edition of French Property News.  

French Property News, February 2012 (our 200th post!)

In this issue I have offered an up-to-date review of the French property market, looking at France's housing stock and how it is divided between apartments (just 20%) and individual homes of varying sizes, and 32 millions households, just over half of whom are home owners. This last figure contrasts with higher levels of home ownership in Europe - including Spain (83%), Ireland (78%) and Great Britain (70%).

Although France's housing stock has risen from 25 million in 1984 to today's figure, there is still a housing shortage due to marriage breakup and newly constitutde family units, as well as larger numbers of people living on their own. An estimated 2 to 4 million properties are considered to be sub-standard and requiring replacement, including many large estates constructed in the sixties and seventies. 

French people also own three million second homes, either inherited or purchased as security for retirement, though the majority are sold by their owners within 10 years of acquisition. Reasons given include children growing up, the trend to travelling further afield and taking holidays outside France, and the need to raise capital (noting that in the last decade some property values have risen by 150%).

Nonetheless transactions involving second homes represent just 7% of the market, though this can be considerably higher in coastal and holiday areas, where the proportion of second homes can be s high as 70% of the local housing stock. 

Source: www.french-property-news.com February 2012, Expert Advice, Peter-Danton de Rouffignac

Creating jobs in France

As we approach the forthcoming elections in France, with radically different programmes on offer from left and right, it seems the French are still struggling with the idea of simplifying the mass of rules and regulations surrounding the creation and management of even small business.

Even though the French auto-entrepreneur scheme has been a relative success (with nearly a million new business creations since its launch) the social security system remains in a total mess, divided as it is into numerous organisations or special regimes depending on your occupation. The situation becomes even more nightmarish if you undertake more than one recognised activity. A lecturer at the Sorbonne complained to me 'for the French social authorities I am two people - a lecturer and a consultant - paying two lots of charges to two different organisations. I also happen to have inherited 20 hectares of land which it is easier to simply let out to a local farmer: If I even thought about cultivating it myself, I would have to join also the special regime for farmers and growers. It is complete madness'.

Retired British people living in France are particularly badly hit, especially if they receive a British pension and depend on the French basic health care system for their sickness cover. Registering as an auto-entrepreneur (self-employed) alters all this, with loss of the basic cover and compulsory entry into a social regime covering the type of work undertaken (from craftsmen to business consultants). As a result many people simply give up, at a time when it is prudent for all of us to try and earn and save a little extra, and not have to rely on handouts from the state, even where these are available. 

As a 'victim' of this complex system I have had several meetings with representatives of the various French social organisations and explained the British system - basically explaining that you can receive a pension and work at the same time, paying some income tax (after deducting expenses) above the limit of of one's individual allowances. 'It is really as simple as that?' said one astonished official, 'Yes' I replied as I contemplated the 16 different deductions (social charges) on my payslip - in reality an A4 sheet! - which included 'pension contributions'........

France is not alone in maintaining a complex regulatory system for new business startups (a minefield of regulations, restrictions, licences and permissions) and for the collection and payment of tax and social charges. In a recent interview with young people facing unemployment in Italy, Spain and Greece, several complained of the practical barriers to starting even the smallest business, administrative delays and in some cases the need to hand over a fee (bribe) to a government official in order to get anything done.

It is surprising that in these times of crisis and large-scale unemployment, neither side in France's election campaign has come forward with anything like a solution. 

P-D de R.

68% of French property transactions handled by agencies

In a report published this morning in the LeParisien*, research undertaken by MeilleursAgents.com* shows that of all property transactions in France, no less than 68% are handled by estate agencies, compared with 19% by networks (introducing individuals to individuals) and 13% by other means, including notaires, family and friends.

The research goes on to report that out of evey 100 clients who visit an agency, 79% ended up buying through the agency - in the case of sellers, the proportion was 70%. Results for those consulting the person-to-person networks were 26% and 28% respectively.

The researchers also found that higher value properties of five rooms or more were most often entrusted to agencies by their owners (in 30% of cases), compared with 24% for studios and two-room apartments.

Signing an exclusive sales mandate with one agency resulted in a sale within three months in 77% of cases, compared with 55% where multiple mandates had been given to two or more agencies.

Sources: www.LeParisien.fr www.MeilleursAgents.com AFP/Eric Piermont

Spread of illegal homes in France

According to a report in the French newspaper LeFigaro, one of the side effects of the economic crisis is an increase in the number of dwellings being illegally built on agricultural land or land classified as non-constructible. Among the regions most affected are Essonne (Greater Paris region), Rhone-Alpes and Provence-Alpes-Cote d'Azur.

Typically small houses are built clandestinely over a series of weekends and can be completed within a month, according to one source quoted.  Local mayors react either by turning a blind eye, as it can take several years to bring a case before the courts; while others are taking tougher measures such as refusing to enable electricity and water connections.

Farmers and growers have a right under the law of 2005 to erect a dwelling on their land, but this is often abused by disguised sales or gifts to family members. The French government body SAFER is required to vet all sales of agricultural land, when notified by the notaire handling the transaction, but can remain unaware of cash transactions or private arrangements within the family.

In a recent case, I had to advise clients to withdraw from the purchase of a 7 hectare olive grove, which included a two-bedroom house built some 15 years ago without planning permission. While the owner isisted that 'the mayor knows all about it and everything is okay', my own enquiries revealed that it was known to the authorities 'as illegal, built without permission and could be ordered to be demolished at any time'. My clients eventually bought elsewhere.

If in any doubt, potential buyers of French property should make careful enquiries and take professional advice before entering into a transaction of this kind.

French property market 2012?

Several of the major French agency groupings (Century 21, Guy Hoquet, Era France) have together offered their thoughts on how the French property market is likely to perform in 2012.

According to Laurent Vimont of Centry21 and Philippe Buyens of Guy Hoquet, overall property sales are likely to fall to around to 600 000 transactions in the 12 months to December 2012, though Vimont also predicts some price rises (2 - 3 per cent on average). This is borne out by other recent surveys suggesting some price reductions, as always highly variable according to different regions - my own, Languedoc Roussillon, for example remaining stable (and recently described by the UK Times newspaper as France's new 'cote d'azur').

Era France have spoken of price falls of up to 9% in 2012 and a reduction in the numberof transactions of around 8% compared with 2011.

Various commentators have expressed different views on the potentially adverse effects of the French presidential elections (investors do not like uncertainty) and the European rescue plan for the euro. Though many argue that these factors tend to encourage investment in bricks and mortar. Interest rates remain comparatively low (4%) though as in the United Kingdom first time buyers face difficulties in saving for a deposit (due to the high cost of renting while they save) and the increasing demands of the banks for larger deposits. 

Note however that average prices for an apartment have risen by a staggering 125% between 2000 and 2011, and overall property prices (excluding new-builds) still rose by nearly 8% in 2011- well ahead of inflation.

Source:LeParisien.fr 03 January 2012

Renting versus buying

A survey published by zoopla;co.uk and published in today's Daily Telegraph reports that in 47 out of 50 large towns in Britain the cost of renting exceeds that of repaying a mortgage. In the case of London it costs 31% more to rent a property than to buy. As a result, potential buyers are faced with ever higher rents, making it even more difficult to save for a deposit.

Compared with Britain at 70%, France has a relatively low level of ownership of principal homes (at 56%), well behind other European countries such as Spain, Greece and Italy. Out of 27 million French households, 43% are renters, with 11.6 households choosing or being obliged to rent. With over 3 million second homes, many choose to live in rented accommodation (as their principal home) and 'invest' in the second home, either for rental, holidays or eventual retirement.

During the current economic crisis, the French property market has been slower than normal, as French banks and mortgage providers excercise more than their usual caution regarding deposits and the one-third income rule - even though, as in Britain, monthly rentals can equal or sometimes exceed rental payments. The banks' traditional insistence that borrowers should show evidence of a long term work contract (CDI) seems somewhat archaic in view of continual employment uncertainty, and the growing numbers of newly self-employed (an estimated half a million, though many part time, created in the last two years).

Source: www.telegraph.co.uk Property