Is France Next?

Is France Next?

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Paris Eiffel Tower Skyline

Paris is known as the romantic getaway of choice in all of Europe by many people. The city has long been an attractive spot for property investors due to the central Europe location as well as its popularity. It made for easy rental or long term letting.

However, cracks are now starting to appear in the city’s property market. Turnovers are on the downturn and property prices have stopped climbing which is concern for many. After the catastrophic turn of events in fellow Eurozone countries like Ireland and Spain, home owners can’t be blamed for worrying about their future.

Reports from the FT of a market slowdown have been confirmed by Parisian real estate agents. These guys know their market and if they are showing concerns, perhaps they do carry validity indeed.

Back in April this year the International Monetary Fund reported that housing prices in the UK, the Netherlands, Ireland and France were inflated by some 30%. This of course translates into “what goes up must come crashing down sometime”.

Despite this current slowdown of the market, some say it is part of the current financial crisis that has rocked the global stock market over the past week.

With France’s economy being somewhat larger than Ireland, there is more dollar power to carry a dip in the property market. Current building law also restricts the amount of development that can go on in Paris.

Opposed to many countries worldwide, credit is still freely available to buyers. Another point to consider is the fact that many French property owners are not hindered by large mortgages which they find hard to handle. The French mortgage market usually runs for 15 years with fixed loans.

Unlike in the UK and even the US, property owners in France have refrained from borrowing heavily against the rising market value of their houses. This will give them some intermediate buffer if the market was to slow down tremendously all of a sudden.

The best indication of a slow down are the figures:

  • In 2005/2005 the market rose by 13 percent
  • In 2006 this remained pretty much in double digits
  • In 2007 the market slowed down to 5 percent

This year, sales of new housing slowed by some 20 percent already which further indicates there might be trouble.

Charles-Marie Jottras, president of Daniel Fcau property group stated: “A lot of people think that Paris is the most beautiful city in the world and they want to have a flat in Paris, and we have a very strong flow of money coming in from the emerging countries.”

The property market outside Paris has dried up even more. Many areas suffer because foreign interest has dried up altogether. Despite this, economist of Barclays Capital in Paris is confident the market will stay balanced and there is no reason for concern.

Also, opposed to Spain with 12 percent workforce employment in the construction industry, France’s workers only make up 7 percent. In case of a construction melt down, this won’t have the same economic effect like it had in Spain.

Eurozone growth will be affected by oil prices and trends in global growth. The housing market should only be a secondary concern for these Eurozone nations.

photo credits: taylormiles [via flickr]