France Faces 40Pc House Price Slump

[thecrashingisles]

http://www.telegraph.co.uk/finance/economics/houseprices/9244152/France-faces-40pc-house-price-slump.html

Graph of price to take-home pay is striking

"It is a gigantic bubble, all the more dangerous as it is spread across France," said Pierre Sabatier, from the consultancy PrimeView.

"It reached a paroxysm in the summer of 2011. There is a mix of incredulity and denial as it starts to burst but there can be little doubt that all levers propelling the market are disappearing."

PrimeView said prices across France have jumped 160pc since 1998, though houshold incomes are up just 35pc. Paris has overtaken New York to become the world's third costliest city at €18,000 (£14,600) per square metre.

Standard & Poor's has told investors to brace for a 15pc correction. Credit Agricole says prices may fall 12pc by the end of next year, expecting a "gradual slide" that could last until 2016.

PrimeView thinks it will be much worse. The price-income ratio was stable from the 1960s to the late 1990s, before exploding over the past 12 years as a perfect storm of demographics, state sweetners and cheap credit led to a 12-year blow-off.

There are parallels with Spain and America but Mr Sabatier said the French twist is a replay of the early 1930s when investors fled stocks after 1929 and rotated into "safe" property. Hence the paradox of rising prices during the Depression. The strange boom did not end until premier Pierre Laval cut rent ceilings in 1935, triggering a long slide.

"Laval's policy change was the catalyst. The same could happen now as austerity forces brutal measures," he said. An array of market props are eroding, including tax relief on some mortages and certain capital gains.

[Frank Hovis]

That looks familiar

[Snafu]

That looks familiar

A couple of years ago I would have said "they will crash". What I've learn from the UK though is that the powers that be will try their damndest to avoid it. But then again, maybe that's only the UK.

[madpenguin]

The bubble covers a lot of developed European countries for the same reason, international availability of cheap credit before the crash.

How many people with 200 grand mortgages now would have got them 10 years ago in the UK?

Edited May 4, 2012 by madpenguin

[Frank Hovis]

A couple of years ago I would have said "they will crash". What I've learn from the UK though is that the powers that be will try their damndest to avoid it. But then again, maybe that's only the UK.

But.. see below

The bubble covers a lot of developed European countries for the same reason, international availability of cheap credit before the crash.

How many people with 200 grand mortgages now would have got them 10 years ago in the UK?

Therein lies the answer as far as I am concerned, specifically how many would get them now. The buyers are not there as a consequence. So you have a period of low transactions before the market starts seeing significant resets. As has been said before prices are set at the margins, with the transactions that are actually happening, not by the asking prices of those unwilling or unable to reduce their selling prices and hence don't sell.

[Democorruptcy]

The bubble covers a lot of developed European countries for the same reason, international availability of cheap credit before the crash.

How many people with 200 grand mortgages now would have got them 10 years ago in the UK?

I wonder how much the UK bubble is to blame? People buying second homes all across Europe. The Irish had their own Place in the Sun type program.

[Snafu]

Frank Hovis: I am just getting turbo-cynical. I hate it.

[@contradevian]

Glad I got out in 2010.

[Frank Hovis]

Frank Hovis: I am just getting turbo-cynical. I hate it.

I appreciate that Sanfu, I think we're all a bit exasparated that the Labour government encouraged the credit bubble and then the Coalition are trying to keep it bouncing along. IMO there is now a glacier-like inexorability to a HPC (real-terms anyway) as both available cash (though rising unemployment, low wage inflation and high price inflation) and available credit (lower LTVs, IOs being dropped, no liar loans) continue to contract. So savvy buyers hold back and mug buyers are saved from their own stupidity.

[corevalue]

An HPC would cost the French government dearly. Don't they have relatively low property taxes, but collect a much larger tax take on exchange?

[campervanman]

An HPC would cost the French government dearly. Don't they have relatively low property taxes, but collect a much larger tax take on exchange?

We paid a total of about 4k euros in legal fees and stamp duty on our French property purchase in 2007. We only paid 75k euros for the place though .

[davidg]

An HPC would cost the French government dearly. Don't they have relatively low property taxes, but collect a much larger tax take on exchange?

They did have lowish property taxes but they've gone up a lot, as much as in the UK in some cities. Stamp duty is around 7% but as few properties are selling at the moment I'm not sure that is a big factor, one of Sarkozy's ideas was to scrap or decrease this tax as it is seen as an impediment to mobility.

[swissy_fit]

This French price crash, if it happens, will be localised, as in the UK.

Properties in France but near Geneva are priced based on at least one of the people living at the property working in Geneva (thus earning a lot more) and the mortgage being in CHF at a lower rate of interest. Can't see Geneva crashing anytime soon, so I doubt if the French prices will drop either.

Places in the middle of nowhere may return to their real value though. (about 35-40% of their current value IMO).

[Democorruptcy]

This French price crash, if it happens, will be localised, as in the UK.

Properties in France but near Geneva are priced based on at least one of the people living at the property working in Geneva (thus earning a lot more) and the mortgage being in CHF at a lower rate of interest. Can't see Geneva crashing anytime soon, so I doubt if the French prices will drop either.

Places in the middle of nowhere may return to their real value though. (about 35-40% of their current value IMO).

We have some friends with a house and 2 gites in the middle of nowhere. They put it all on the market 2011 and recently got a "very good offer" but decided to turn it down and stay in it. They were going to stay in France but buy smaller. STR opportunity?

[JaneTracy]

Thanks for the original link which looks both ominous and familiar. It also feeds in with an article that I was reading about the state of the French economy which appears to have taken a lurch downwards.

What about France ahead of her election?

We even see France slipping into trouble with this set of data. Indeed her service sector appears to have shrunk at the fastest rate of all.

Final Markit France Services Activity Index at 45.2 (50.1 in March), 6-month low.

A contraction in this index of 4.9 is not something that is likely to have gone down well with the breakfast coffee and croissants at the Elysee Palace this morning. And we can add in this weeks manufacturing numbers which I reported on Wednesday.

Final Markit France Composite Output Index at 45.9 (48.7 in March), 6-month low.

So the manufacturing figures which we thought were poor end up improving the overall index and we end the week with the Euro zone having taken several heavy economic punches. In France itself there is at least some hope that the figures have been influenced by her election.

http://www.mindfulmoney.co.uk/wp/shaun-richards/as-recession-spreads-to-even-core-euro-nations-i-fear-for-greeceportugalspain-and-italy/

Should the French economy continue to weaken then it will put considerable pressure on house prices in France.

[davidg]

This French price crash, if it happens, will be localised, as in the UK.

Properties in France but near Geneva are priced based on at least one of the people living at the property working in Geneva (thus earning a lot more) and the mortgage being in CHF at a lower rate of interest. Can't see Geneva crashing anytime soon, so I doubt if the French prices will drop either.

Places in the middle of nowhere may return to their real value though. (about 35-40% of their current value IMO).

A few clouds on the GVA horizon though. In April 2014 frontaliers will have to join the French CMU scheme which will mean 8% extra in social security contributions. Currently frontaliers take out a private health insurance which is much less than joining either the French or Swiss government schemes.

The Swiss economy seems to be slowing down, I guess frontaliers will be in the front line for lay-offs, already quite a lot of announcements from banks and IT companies.

There is a big anti-frontalier head of steam building up in GVA. The head of the CHU has said no more frontaliers to be appointed to senior posts in the hospital.

CH depends to some extent on the EU economy which does not seem to have a great short term outlook.

The ONGs are having budgets slashed. The UN is moving a lot of staff out to places like Hungary and Kenya.

The banks are relocating some operations to places like Singapore as CH's position as a tax heaven is threatened.

I don't see Geneva prices crashing, too little building and far too much demand but things could be different on the French side esp if those frontaliers have CH mortages to service but are claiming FR dole checks.

You may get more stability in places that have good core industries, say Lyon with its pharma industry and where they can pick off CH IT contracts with cheap French labour.

Edited May 4, 2012 by davidg

[swissy_fit]

A few clouds on the GVA horizon though. In April 2014 frontaliers will have to join the French CMU scheme which will mean 8% extra in social security contributions. Currently frontaliers take out a private health insurance which is much less than joining either the French or Swiss government schemes.

The Swiss economy seems to be slowing down, I guess frontaliers will be in the front line for lay-offs, already quite a lot of announcements from banks and IT companies.

There is a big anti-frontalier head of steam building up in GVA. The head of the CHU has said no more frontaliers to be appointed to senior posts in the hospital.

CH depends to some extent on the EU economy which does not seem to have a great short term outlook.

The ONGs are having budgets slashed. The UN is moving a lot of staff out to places like Hungary and Kenya.

The banks are relocating some operations to places like Singapore as CH's position as a tax heaven is threatened.

I don't see Geneva prices crashing, too little building and far too much demand but things could be different on the French side esp if those frontaliers have CH mortages to service but are claiming FR dole checks.

You may get more stability in places that have good core industries, say Lyon with its pharma industry and where they can pick off CH IT contracts with cheap French labour.

Yeah, some truth in all of that, the mafiosi laundering their cash through Geneva property aren't interested in stuff on the French side, but they have driven a lot of middle-class buyers across the frontier.

Geneva is in danger of pricing itself out, a big company just announced a major closure here, one of the first ever.

Allowing banksters to dictate policy is dangerous for any economy - IMO the place to live now is Iceland (but wife wouldn't stand for it).

Edited May 4, 2012 by swissy_fit

[Democorruptcy]

IMO the place to live now is Iceland (but wife wouldn't stand for it).

The first country beyond economic collapse?

What does she think of Greece? I'd prefer the sun to volcanoes. Once the Euro exit aftermath has settled down and before they start booming.

[davidg]

I'm sure the 74 and 01 will do better than some English ex-pat hell hole like Brittany or the Poitou Charente. Certainly there is still net migration to the Rhône-Alpes region and you are dead right about the middle class Swiss who can no longer afford to buy in their own country.

[swissy_fit]

The first country beyond economic collapse?

What does she think of Greece? I'd prefer the sun to volcanoes. Once the Euro exit aftermath has settled down and before they start booming.

Not my favourite culture, they're too much like their Balkan neighbours for my liking. Also their reaction to the situation has been quite different to that of the Icelanders in my view. Can't see them throwing off the bankers yoke.

[Snafu]

Swissy_fit: which company?

[campervanman]

I'm sure the 74 and 01 will do better than some English ex-pat hell hole like Brittany or the Poitou Charente. Certainly there is still net migration to the Rhône-Alpes region and you are dead right about the middle class Swiss who can no longer afford to buy in their own country.

Brittany is very much like Cornwall but without pasties and china clay pits and with warmer rain and half priced houses. Poitou Charente is the second sunniest part of France after Provence and much of it resembles the nicer bits of the cotswolds. I've no idea what part of the planet you inhabit but maybe you need to redefine hell hole 'cos I know both the places you refer to and compared to 90% of the UK they certainly aint.

Edited May 4, 2012 by campervanman

[Democorruptcy]

Not my favourite culture, they're too much like their Balkan neighbours for my liking. Also their reaction to the situation has been quite different to that of the Icelanders in my view. Can't see them throwing off the bankers yoke.

One to consider only if there are some lynchings then?

[swissy_fit]

Swissy_fit: which company?

Merck Serono.

To attract the kind of personnel they need, they have to offer salaries of 10k CHF net a month(equivalent to 110-120k GBP gross salary), and that will not mean you live fabulously here, though a frontalier would do very well on that. Geneva is pricing itself out - tax incentives are one thing, but employee costs are huge, mainly due to housing and medical insurance costs.

The average salary for state employees was published the other day - over 9k CHF per month net.

[Snafu]

Merck Serono.

To attract the kind of personnel they need, they have to offer salaries of 10k CHF net a month(equivalent to 110-120k GBP gross salary), and that will not mean you live fabulously here, though a frontalier would do very well on that. Geneva is pricing itself out - tax incentives are one thing, but employee costs are huge, mainly due to housing and medical insurance costs.

The average salary for state employees was published the other day - over 9k CHF per month net.

Our head office is there. Wouldn't be surprised if it gets pulled at some point, because of the stupidly high costs.