The property market generally in Europe appears to be
stabilising compared to the US market which appears to be
in a bit of a crisis due to the sub-prime lending market.
We have seen a marked slowdown in the Spanish property
market and the UK market seems to have lost most of its
steam now as well. This is likely to be pervasive over the
next few years as unlike in 2004 when everyone predicted
the same thing; today interest rates are that much higher
as are property prices and the uptake of mortgages in the
UK are also slowing while house repossessions are
increasing. The effect of this is likely to be a
stabilising property market with minimal capital growth and
in some areas of the UK even price falls. Getting a
mortgage in the US, Spain and the UK has always been
relatively easy than when compared to France thus ensuring
that a sub-prime crisis like we are witnessing in the US is
highly unlikely in France. French rules on mortgage lending
dictate that the mortgage applicant must be earning at
least three times their monthly mortgage outgoings after
taking into account all other loans. This means that
although people are refused finance more often in France
and the procedure of gaining a loan can often feel
protracted it does actually benefit the economy and its
property owners in the long run.
The new president Nicolas Sarkozy has clearly stated his
wish to make the French economy achieve its full potential
where it has failed to do so in the past. He also wishes to
turn France into a nation of home-owners much like Thatcher
did during her time in power in Britain. In France only 57%
of the population currently own their own home compared to
70% in Britain and an impressive 84% in Spain showing there
is plenty of room for growth here. He intends to achieve
his dream by implementing a number of economic and tax
reforms which are likely to encourage trade and increase
Economic activity. These changes include but are not
limited to the following-
1) Extending the 35 hour working week
2) Significantly reducing the amount of inheritance tax and
even making spouses exempt
3) Allowing mortgage interest payments on your main home to
be offset against tax
4) A shift away from direct taxation (such as income tax)
to indirect taxes (such as VAT and environmental tax) with
the result being an overall tax reduction of 4%
The effects of all these should increase demand for
property and the propensity to invest in French property in
the long term. By itself this does not mean property prices
will increase but when you take into account that there is
a housing shortfall of 400,000 properties across France
each year this excess demand and under supply is bound to
have a positive impact on real estate prices.
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Niclas Dowlatshahi is the Managing Director of Leapfrog
properties who are an agency specialising in property sales
across France. Visit http://www.leapfrog-properties.com to
see how we can help.
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