First quarter '09 report on property market: This French Life

WITH property prices in France facing the squeeze from the current economic chill, it was interesting to see the first quarter report from the national association of estate agents.

The FNAIM looked at the figures from the first three months of the year to get an idea of how the market was performing.

But what is the view from the estate agent's office? Here Matthieu Cany, of Sextant Properties, takes a look at the figures and the overall property market in France.

The last market review published by the Fédération Nationale de l'Immobilier (FNAIM) confirmed the general trend with price reductions during the first quarter of 2009 but emphasised the fact there is no risk of a property crash.

According to an internal survey carried out by the FNAIM, 260 estate agents participated in it, their turnover for the first quarter of 2009 was down by an average 30 per cent compared to the first quarter of 2008.

An article published in the French newspaper Le Monde mentioning the FNAIM market report and a report from French notaires indicates that their activity in 2008 decreased by 20 per cent compared to the previous year.

The whole resale market decreased by 17 per cent, from 802,000 in 2007 to 667,000 in 2008. New build sales dropped by 37.6 per cent (79,400 in 2008 against 127,300 in 2007).

As a consequence, the major French property developers decided to introduce price reductions on most of their developments during the fourth quarter of 2008 and the first quarter of 2009 by 10 to 20 per cent.

The FNAIM mentions that the French government took several steps to revitalize the
French new build market but haven't put in place significant actions for the resale market.

This can be easily explained by the notaire figures previously mentioned. Thus, the recent tax incentives dedicated to French taxpayers such as Loi Scellier have boosted the French investor market.

It can be noticed by looking at the property developer quotations on the Paris stock exchange such as Nexity which has increased by 76.22 per cent since January 1, 2009. It also explains why it is proving more and more difficult to get further discounts on new build and off-plan properties in France.

The resale market

The financial earthquake and the brutal degradation of the global economy had an impact on the resale market, but not comparable to the one seen in the UK or the US.

The number of transactions carried out by estate agents dropped on average by about 25 per cent whereas the end of the price rise was favourable to the solvency support of the demand (+1.5% on average each year between 2005 and 2007) and compatible with the support of high level of activity, close to 700,000 transactions per year.

The property market - slow price decrease, but no risk of a crash

Unsurprisingly the decrease in the price of resale properties was confirmed during the first quarter of 2009; on apartments a fall of 0.4 per cent took place and in houses 1.7 per cent.

However the overall decrease of one per cent has been less sharp as a whole than those recorded within the thirds quarter 2008, - 2.9 per cent, and the fourth quarter of last year of - 6.5 per cent.

The transactions carried out during the first quarter of 2009 were completed at prices 9.8 per cent lower when compared to the sales realised during the first quarter 2008.

In the countryside, declines that occurred in 2008 are reflected in the prices: -7.7 per cent and -6.1 per cent respectively in the east and western regions of France.

The south west saw falls of -6.4 per cent, in the Centre and Alps a fall of -8.8 per cent took place, -11.2 per cent in Paris Ile-de-France and -13.3 per cent in the south east.

With the image of the price evolution recorded on the Parisian market (- 4.9 per cent over one year), there is no doubt that much of sellers have now agreed to moderate their asking price.

According to the FNAIM survey, one in two sellers in France are now ready to negotiate their asking price with an average reduction of 14 per cent.

One of the reasons comes from the fact that properties are staying longer on the market; five months on average in 2009 compared to three months at the beginning of 2008.

But more and more professionals now believe that prices have reached a low on the
French property market and hope to see the light at the end of the tunnel pretty soon, especially with the improvement of the solvency of French buyers.

Solvency of French buyers is improving

The recent interest cut by the European Central Bank (down to 1.5 per cent in April 2009) has contributed to easing the lending market.

In France, people can now easily get a monthly repayment mortgage at 4.25 per cent when it was about 5.15 per cent in November 2008.

And most importantly, the recent price reductions helped improve the solvency of French buyers. The solvency indicator has increased by 5.2 per cent on the first quarter 2009 compared to last year.

The impact of price decreases of 10 per cent and of a fall by more than 60 points of base interest rates is worth noting, as it is becoming easier for French people to get a mortgage and this has already brought some dynamism to the market.

The 2009 forecast

These last price reductions can only be welcomed by the property market. The combination of prices reaching a low, sellers prepared to negotiate their asking price with an average reduction of 14 per cent and the imminent return of French buyers to the market thanks to the improvement of their solvency, it would not be surprising to see the market pick up sooner than expected.