French property market: signs of recovery

After years of decline, there are increasing signs of recovery in the French property market. For those hoping to purchase holiday homes or invest in French real estate, the signs are encouraging.

For Britons, the days of using equity from soaring house values to buy holiday homes abroad in countries such as France have long gone. Britons who purchase real estate in France are typically wealthier than those who buy property in Spain. In France, Britons usually purchase holiday homes in regions served by budget airlines. These places typically include the Mediterranean coast along the Cote d’Azur into Languedoc; the Alps; and south-west of France, from Normandy down to the Spanish border.

But, with the economic downturn, interest in investing in French real estate from international buyers dropped substantially at the end of 2008. Figures from Athena Mortgages indicate, for example, that in 2007, more than 125,000 new build units were sold in France. This marks the high point in property sales for that property class. The following year, 2008, numbers almost halved to 79,000.

For Britons who were hoping to fund their purchases with once lucrative rental income, the decline in property during the economic downturn meant that their rental earnings have had a severe dent. Rental income is modest even for those who did find takers during the recession. During the economic downturn, the travel website HolidayLettings.co.uk indicated that many British property owners were running discounted offers. This meant that tourists looking to rent a cottage for a week in France at high season could easily find it cheaper to hire one in France than Cornwall for instance.

One of the biggest victims of the French downturn may have been those who bought new-build. Estate agency Humbert’s figures indicate that prices of some property in Chamgagne-Ardenne fell more than 20% in 2009 and have yet to show any signs of recovery. Even asking prices for new houses in prime locations have fallen by between 10% and 20% since the levels during the recession.

However, there are increasing signs that the French property market is picking up in 2011. For instance, the Federation National de l’immobilier, the French estate agents’ body, indicate that average prices of all homes rose 6% in 2010 and property purchases exceeded 700,000. This represents a 15% rise on 2009. In Burgundy, for example, the average price of a home is now £129, 000 while in Languedoc the figure stands at £182,000 and is rising to £334,000. The Federation predicts increases of about 3% in 2011, with larger increases in the cities.

In addition, tax breaks for French property buyers have also created a buying frenzy. This has consequently led to a scarcity of new build properties in some part of France such as, for instance, popular locations in the Alps and Paris. According to French mortgage specialists Athena Mortgages, what this means is that, increasingly, British buyers are finding themselves in competition with French buyers for the most sought after developments.

However, for Britons, the days of releasing equity from their UK properties to purchase real estate in France is now long gone. Athena Mortgages for instance indicate that Britons are now highly unlikely to purchase a French property outright. Increasingly, they are reporting that Britons are seeking French mortgages of between 10% and 30%. The advantages of borrowing in euros mean that the British purchaser can avoid exchange rate complications. Also, it may be cheaper to pay off in euros if British sterling rallies.

Add to this the fact that French interest rates are still rising in 2011. For instance, in February to March, French banks saw an increase of 0.40% in the OAT. The OAT is one of the main indices in France, and its rise has led to further increases in the cost of fixed rate and capped rate mortgages. The French OAT index is based on the total obligations of the French treasury for bond issues over different durations. The index is the basis for much of the long term lending at either capped or fixed rates of interest.

This rise has been fully passed on to borrowers by the majority of banks now, with some going further and increasing rates over and above this rise. For example, many banks have taken this opportunity to slightly increase margins and initial rates on variable products even though the three month Euribor has been stable for the last month at just over 1%. But at the same time, the exact timing of further increases to the European Central Bank base rate, which continues to remain steady at 1%, is still unclear.

Nonetheless, the French property market does appear to be blossoming. For instance, figures from Athena Mortgages indicate that with just over 115,000 units sold in 2010, it appears that the crisis in the French sector may be over especially with many new developments coming online since the beginning of the 2011.

The future looks bright for this sector, which will encourage many overseas and British investors who are looking to buy new build property or purchase a second holiday home in France.

For those who are thinking of purchasing a holiday home in France, it might be useful to bear the following in mind:

• If you’re only intending to visit a couple of times a year, location is everything especially if you don’t want to spend all your time travelling. It would be wise to think about the distance of the property from the nearest train station, ferry port or airport.

• A second home costs money. Remember to budget for local taxes and maintenance. For instance, if your property has a swimming pool or a garden, you may need to factor in maintenance costs.

• Remember that the law governing swimming pool security in France. The fine for not complying with the law is 45,000 euros.

• Once you buy a house in France, you will be subject to two local property taxes which you will have to pay. These are collected centrally and distributed to your local region. They pay for rubbish collection, street cleaning, schools and other community facilities. These taxes are: taxe fonciere and taxe d’habitation. You have to pay these taxes regardless of whether you are a resident or not. Both taxes are due on the 1^st of January each year for that year.

• There’s probably a good reason why the property has been on the market for some time. If this is the case, it would be wise to investigate the cost of a similar property in the area. After all, the property which you have your eye on might be overpriced.

• Think local and be sensitive. Use local tradesmen and contractors where possible. Doing this will keep you in the good books of the locals. If you’re unsure, ask around about who’s recommended. Get your produce from local stores and shops. More often than not, you’ll find that people are helpful, friendly and ready to welcome you.

• If you’re fortunate to be invited to the home of a French family for a meal or drinks, remember to take a little gift with you such as flowers, chocolates or a houseplants.

• Buy the local newspapers. The small ads are useful sources of information on suppliers, second-hand goods sales, fetes, markets, etc.