Will the Sarkozy Presidency Help French Property Prices?

Will the Sarkozy Presidency Help French Property Prices?

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Nicolas Sarkozy

The answer is probably that it is too soon to tell. In particular, the fulfilment of Nicolas Sarkozy’s plans for the French economy are contingent upon the election of cooperative National Assembly in the June elections.

There has been considerable attention to the introduction of tax breaks on interest payments for mortgages for first homes (main residences). Of course, this will only directly benefit a the minority of foreign owners of French property for whom France is their main place of residence. Also, the impact on property prices will be felt most strongly in well populated areas rather than the sequestered locations that overseas investors favour for second homes. However, resort areas should join in the overall benefit of the change.

President Sarkozy is also planning a reform of French inheritance tax with the intended effect of removing all but the wealthy from its grasp. This is likely to cause some French people to consider trading up the property ladder more favourably.

Although overseas property companies such as Latitudes and Assetz have forecast a positive impact from Sarkozy’s reforms, it seems that a strong, sudden or short-term improvement is not likely though some buyers may have been waiting for the election result before committing themselves. Investors will have to wait for a few years for significant profits to materialise. Only six weeks ago we posted on possible problems in the French property market owing to an oversupply of new build (Housing Flu at the Door Step of France – 10th April 2007).

Some polices for strengthening the country’s property market have already been put in place. For instance, French banks already permit very high ratios of debt to income (33 to 40%). Given that Euro Zone interest rates are relatively low, this can mean that a borrower could set their sights on properties worth eight times their income. The French government has also introduced a benign VAT regime for property purchases involving a lease-back to the developer (see out post; ‘How French Buy-to-Let Schemes Can Save You a Fortune in Tax‘ – 26th Jan 2007).

For UK citizens even Gordon Brown has tried to make things easier by lifting the ‘benefit-in-kind’ charge on property owned through a company as a device to reduce UK inheritance tax.

For regular information on how the French market is progressing, the Edison Ford site is worth visiting. To keep an eye on house prices, we have yet to find an equivalent to the Halifax or Nationwide monthly surveys but Insee Conjoncture gives a helpful breakdown of what’s happening to ‘second hand’ properties, ‘Indices Notaires/Insee des prix des logements anciens‘ for French speakers. However, this will not give you the full picture regarding the all important regional variations. Suggestions from readers on ways to keep track of French prices would be most welcome.