House price declines continue in France
Last Updated: October 17, 2015
In Ile-de-France, France’s wealthiest and most populated region, the average apartment price fell by 2.97% (-3.18% inflation-adjusted) to €5,220 (US$ 5,875) per square metre (sq. m.) during the year to Q2 2015, according to the La Chambre des Notaires de Paris.
- In Paris, apartment prices declined by 3.08% (-3.28% inflation-adjusted) to €7,880 (US$ 8,868) per sq. m. y-o-y to Q2 2015.
- In the Petite Couronne (Small Crown), the average price of apartments dropped by 2.54% y-o-y (-2.75% inflation-adjusted) to €4,220 (US$ 4,749) per sq. m.
- In the Grande Couronne (Great Crown), the average price of apartments also fell by 3.68% (-3.89% inflation-adjusted) to €2,880 (US$ 3,241) per sq. m.
Despite these price declines, sales of existing apartments in Paris rose by 15% y-o-y to around 8,070 transactions in Q2 2015, according to La Chambre des Notaires de Paris. In Ile-de-France, existing apartment sales were up by 21% to 25,560 transactions. Petit Couronne registered a 26% y-o-y increase in apartment sales over the same period, while in Grande Couronne sales were up by 19% y-o-y. House sales volumes also rose in Ile-de-France (18%), in Petit Couronne (22%) and Grande Couronne (17%).
This is a Paris phenomenon. The number of existing homes sold in France as a whole only rose by 1.4% to 740,000 units during the year to August 2015, according to the Conseil général de I´environnement et du développement durable (CGEDD).
French construction has fallen to its lowest for more than 15 years, worsened by a new rental law capping rents in expensive areas (such as Paris).
- New housing starts fell by 0.21% to 188,468 units during the year to August 2015.
- Total authorized dwellings also declined by 4.24% to 245,004 units.
- In 2014, the number of dwelling permits issued in France dropped by 11.97% y-o-y to 381,075 units, based on the figures from the Ministère de l’Écologie, du Développement Durable et de l´Énergie.
Rental returns in Paris are disappointing
The good news is that if you have an apartment in Paris you will have no trouble letting it. Demand outstrips supply, the main reason that rents are not higher being that French rental contracts are often long-term and there are legal restrictions on raising rents during the contract.
However gross rental yields from apartments in Paris are poor, at around 3.6% for small apartments and 3.1% for big apartments (however it is fair to say that our Paris yields results arguably may not reflect yields in less desirable locations, which are likely to be higher, because our sample focuses on Paris´ high-end city centre).
The average price of apartments in these locations are around EUR 11,600 per sq. m., or EUR 1,085 per sq. ft. This year, we did not find a big price-difference between smaller and larger apartments.
The average monthly rent ranges from EUR 30 to EUR 36 per sq. m., or EUR 2.8 to EUR 3.30 per sq. ft. Smaller apartments tend to rent for proportionately more.
Round trip transaction costs are high on residential property in France. See our French residential property transaction costs analysis and our Transaction costs in France compared to other countries.
Rental income tax is surprisingly low in France
Rental Income: The effective rate of tax on gross rental income accruing to nonresident foreigners is likely to be around 10.00% on an income of €1,500/month, according to calculations provided by Anthony & Cie.
Capital Gains: Capital gains are generally taxed at 19%. Capital gains tax is levied at 33.33% for non-EU citizens.
Inheritance: French private international law uses the standard double rule on inheritance: the law of the deceased’s domicile applies to moveable assets, and the law of the location of the property applies to immoveable assets.
Residents: French residents are taxed on their global income at progressive rates, from 5.5% to 45%.
Transaction costs are moderate to high in France
Round-trip transaction costs in France can range from 7.90% to 28.99%%. New properties have the highest costs because of the 20% VAT but this is slightly offset by a lower registration fee. Real estate agent fees range from 3% to 10% typically split between buyer and seller.
Tenant protection laws are onerous in France
French tenancy law is very pro-tenant.
Rent: Though the initial rent can be freely agreed, the rent can only be revised once a year, and not more than the increase in the (new) INSEE rental index. In combination with a highly restrictive contract structure, this means that rentals of old apartments have tended to drag well behind new rentals and prices.
Tenant Security: An unfurnished property contract has, as a minimum, a three-year term, though furnished property contracts may be for one year. In both cases, even when the contract ends, the owner can only recover the property if he or a family member intends to live there, or he intends to sell. In addition, eviction through the legal system takes a long time.
Stronger growth, lower deficit expected in 2015France’s economy had zero growth flat during the second quarter of 2015, according to the National Institute for Statistical and Economic Studies (INSEE). As compared to the previous year, however, GDP growth was 1.1% y-o-y to Q2 2015.
The recent stagnation is due to weak demand. Private consumption was up by only 0.1% in Q2 2015, down from 0.9% growth in the previous quarter. Public spending also registered a 0.4% growth, slightly lower than the 0.5% expansion in the first quarter.
From 2004 to 2007, the French economy expanded by an average of 2.3% per year. There was a slowdown in 2008, when the economy expanded by only 0.2%. In 2009, real GDP fell almost 3%, the country’s sharpest recession since World War II. Despite the worsening eurozone debt crisis, the French economy managed to expand by almost 2% in 2010 and by another 2.1% in 2011.
In 2012, the economy stagnated, recording growth of 0.2%. Firms slashed thousands of jobs and President Francois Hollande squeezed the budget deficit. France’s weak economic expansion continued in 2013 and in 2014, with growth rates of around 0.7% and 0.2%, respectively.
France’s economy is expected to grow 1.1% to 1.2% in 2015, based on the published forecasts from the IMF, the European Commission, and the Bank of France. Moody’s has downgraded France’s credit rating from Aa1 to Aa2 with a stable outlook, pointed to the EU’s “institutional and political constraints”, as well as France’s “continuing weakness in the medium-term growth outlook."
High unemployment is one of France’s major problems. In Q2 2015, unemployment was around 10.3% in France and 10% in Metropolitan France, slightly higher than the previous year's 10.2% (France) and 9.7% (Metropolitan France).
Inflation was 0% in September 2015, below the 0.3% inflation recorded the same month last year.
The European Commission expects France’s public debt to rise to 96.4% of GDP in 2015, up dramatically from 85.8% of GDP in 2011, and far higher than previous estimates. The government was able to cut the country’s public deficit to 4% of GDP in 2014, down from 4.1% in 2013 but still lower than the EU cap of 3%. The government aims to bring down its deficit to 3.8% of GDP this year and by 3.3% of GDP in 2016. "The government is fully confident that it can bring its public deficit below 3% in 2017, while helping the economic recovery," according to Finance Minister Sapin.
In May 2012 Francois Hollande became the country’s first Socialist president since Francois Mitterand (1981-1995), In August 2014, France entered political turmoil triggered by Economy Minister Arnaud Montebourg´s demand for an end austerity policies. Montebourg demanded a fiscal stimulus to boost growth, arguing that France shouldn’t be “slavish” and “dogmatic” in pursuing deficit cuts.
In response President Hollande asked Manuel Valls, Prime Minister since March 2014, to form a new government “consistent with the direction set for the country”. Montebourg was replaced as Economy Minister by Emmanuel Macron, a former investment banker at Rothschild. Michel Sapin, a career politician, was appointed Finance Minister, all of which signals a determination to continue France´s present austerity policies.