Originally published in August 2009

Market overview

Although the French property market has suffered less from the economic downturn than that in other European countries, there has been a noticeable drop in property transactions over the past two years. The French economy generally remains unstable and the French are concerned about their spending power. As a result property projects, be it sale, purchase or development, are temporarily being put on hold. Businesses too are watching cash flow attentively, and certain industry sectors (e.g. automobile) have been making large-scale redundancies whilst others scale back investment plans, resulting in reduced activity within the commercial property sector.

The volume of residential property transactions fell by 20% during the last half of 2008 and the first quarter of 2009, with sellers choosing to wait for better conditions rather than face a drop in asset values.

Property prices have not fallen significantly in France, unlike other countries particularly Spain, the UK and the USA. This is attributable to the slower rise in property prices over the last decade and the fact that they did not reach the same excessive levels or frenzied purchase behaviour as experienced by other countries.

This price stability, despite the small decline during the second quarter of 2008, is partly due to continued fairly low interest rates (fixed rates at 4 to 5% on average) and flexible loan conditions.

During the first quarter of 2009, residential property prices decreased (- 0.4% for flats and -1.7% for houses) but not at the rate of -6.5% that was experienced during the third and fourth quarters of 2008. A national trend has also emerged; house prices in the suburbs, outskirts of the big cities or properties in the country are dropping, whereas one or two bedroom flats in town centres remain stable.

The commercial real estate market has contracted recently in line with the general economic slowdown. Rental values have decreased, however they remain relatively high, particularly in the Paris area (Ile de France).

State support

French authorities are offering a number of incentives in an effort to boost the property market. The first of these incentives was introduced in December 2008 through increasing the thresholds for eligibility for the interest free mortgage (prêt à taux zéro). More recently, in March 2009 the "Molle" Law was passed, aimed at improving housing conditions. The Molle Law contains several provisions intended to protect the underprivileged as well as tenants (such as obligations to state in residential property leases the floor area of the rented property, limiting the rights of landlords to obtain a guarantee for the lease, improving property co-ownership etc.).

These measures follow on from the LME Law (Loi de Modernisation de l'Economie) of 4 August 2008 intended to boost the French economy. The LME Law included several provisions relating to commercial property such as the possibility for non-trading professions (e.g. lawyers) to enter into a commercial lease or the extension of the period granted to the tenant to leave the premises if the lease is not renewed by the landlord.

Foreign purchasers

Current economic conditions have led to a significant drop in property purchases by foreigners. Like French purchasers, foreigners looking for second homes or a place to retire to have felt the effect of the financial crisis.

The drop in the value of the pound and the US dollar against the Euro means French properties are now more expensive and people living in France with UK incomes (e.g. state pensions) are finding that the cost of living has increased compared to a year ago.

The decline in property purchases by foreigners is particularly noticeable especially in rural cottages or country houses. Areas like the Dordogne or the Quercy are still popular amongst British purchasers, but many are now reviewing their budgets or putting their French property plans on hold. However, in places like Paris and the Côte d'Azur, although property prices have dropped slightly, there is still a strong demand from foreigners for upmarket properties with prestigious addresses.

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