Think of your French property as an investment

To keep this in perspective, you should bear in mind that, in many areas of France, property prices were artificially low in comparison to their British equivalents.

In 2004 sales started to slow down and not surprisingly, many owners tried to take advantage of the rising market and began demanding unrealistic prices for quite ordinary properties. There was also a surge in new-builds, and within three years we were faced with a glut of mainly overpriced properties and a dwindling supply of buyers.

France, however, is not facing the extremes witnessed in other countries such as Spain, Ireland and Britain thanks largely to the banks’ traditionally cautious lending policies. Latest figures indicate that the overall number of property transactions for 2008 will be around 650,000 – slightly more than their 2004 level but down from the 870,000 sales registered in 2007 (figures from Notaires de France/INSEE and quoted in Le Figaro 23 October 2008). Within the new-build sector, sales in 2008 were expected to be around 110,000 (slightly more than in 2004) but down by 17,000 compared with 2007.

From the Ground Up

It is difficult to estimate how many properties would potentially reach the market if conditions were more favourable, but counting newbuilds alone, there are some 320,000 house or apartments being constructed or already completed and awaiting potential buyers. In October, the French government announced a pump-priming plan to purchase around 30,000 newly built properties for social housing. Spain is also embarking on a similar plan.

Resale Properties

So it is to the second-hand property sector many experts argue we must look, if we are to expect realistic price reductions from their currently inflated levels.

Of course, many sellers are also buyers, and clearly everyone would like to sell high and buy low. But holding on for the ‘right price’ could be unwise as some owners will invariably want to get their property onto the market as quickly as possible, before prices drop any lower. There is already evidence of this happening, with a 1-1.5% price drop recorded for virtually every month during 2008, with an overall 10% decrease likely to be registered for the 12 months to December 2008.

A Buyer’s Market?

Two principal factors may act as restraints on the market. They are the continuing ultracautious lending policies of the French banks and overall consumer concerns about the health of the economy.

French banks are in general more secure than their American or British counterparts, as only a couple (one of which is Crédit Agricole, and there have been some concerns over Caisse d’Epargne) have been involved in lending funds in the USA.

The French banks’ mortgage lending has traditionally been based on the borrower’s ability to pay, rather than being secured on the property, and monthly repayments are generally expected not to exceed one-third of disposable income. As a result, a modest €100,000 loan will now require a monthly income of at least €3,000, which is above the French average, but manageable for a typical working couple, and probably more so for the average British or Irish property buyer.

Mortgage interest rates have, of course, risen, and are now generally above 5% on a typical loan over 15 years, compared with 3.8% in 2005, but closer to the 5.85% average rate in 1998 when the market was relatively healthy. The average mortgage length is now 19.5 years in contrast to the 25- or 30-year terms that were briefly offered in 2006-2007.

Price Rises in Places

Despite the uncertainties, some property markets are continuing to prosper. Prices have risen by an average 9.7% in Paris and by 5% in other city centres, perhaps the result of buyers returning to the centre, wishing to be closer to their work and reacting against rising fuel costs. Nice has recorded the highest price rises, with apartments costing an average 7.27% more and houses an impressive 10% compared with last year (Notaires de France/INSEE).

Key Points For Buyers

- Price variations are always regional, so investigate specific areas Good properties will always sell, especially at the top end (€500 000 upwards) and in certain niche markets
- If you have to sell cheap, try also to buy cheap
- Sell before you buy – don’t get caught in the bridging loan trap
- If you have cash, buy now to pick up a bargain
- Buying for occupation is generally safer than investment
- If you see the value of your property declining, it’s sometimes better to wait for the market to improve
- Returns on investment can’t be guaranteed, even in good times
- Owners of existing homes have more room for manoeuvre, so be ready to bargain
- If you are buying a new-build, there are still some great bargains to be had

By: Peter-Danton de Rouffignac

Peter-Danton de Rouffignac MA LLM is a property consultant and advisor living in Languedoc- Roussillon and a director of www.francemediterraneanproperty.com

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