Sign in to follow this  
Followers 0
cobran20

France faces 40pc house price slump

9 posts in this topic

PIIGSF

France faces 40pc house price slump

France faces a property slump of Anglo-Saxon proportions as the frothiest boom in French history finally tips over, threatening the country with an economic shock just as austerity hits.

"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.

The boom seemed to defy global gravity last year as southern Europe and the US battled property slumps. The mood has since darkened. "A number of clients tell me they think the market has topped and want to get out," said one French hedge fund manager.

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.

graph_2210416c.jpg

House prices versus disposable income in France

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.

The shift comes at a delicate moment. Banks are limiting credit as they scramble to meet Basel III lending rules.

PrimeView said deleveraging - which pushes up mortgage spreads - comes just as France's ageing crunch arrives. Those younger than 58 are net buyers of property, those older are net sellers. The buyers will stay constant at 33m, while the sellers rise by 1.2m every five years for a quarter century.

"Starting this year, the demographic structure will have a profound deflationary impact on property, reversing the last 40 years. We could see a vicious circle of falling prices," said Mr Sabatier.

"Ageing means the end of property's golden age. It may be less rapid than in the US because French households have less solvency problems, but we think a 40pc fall may be inevitable over five or 10 years."

A housing slump would hammer the economy just as long-delayed austerity begins in earnest. Property makes up 65pc of French household wealth, compared with 57pc in Germany, 39pc in Japan and 27pc in the US.

The risk is a "negative feedback loop" as all key levers of the economy turn contractionary. Any slippage in growth below the rosy forecasts of both candidates in Sunday's presidential elections, Francois Hollande and Nicolas Sarkozy, would play havoc with debt dynamics, pushing France above the danger line of 90pc of GDP.

"Whoever wins will receive a poisoned chalice. What France faces is like Japan: not a cardiac arrest, but slow growth for years," said Mr Sabatier.

Share this post


Link to post
Share on other sites

looks set to tax million dollar income earners 75% of their income., basically assuring there are no taxes in France form millionaire incomes in the coming years. no wonder the houses are selling. i can see french moves for socialist paradise as destroying the euro, WTG froggies!

Share this post


Link to post
Share on other sites

looks set to tax million dollar income earners 75% of their income., basically assuring there are no taxes in France form millionaire incomes in the coming years.

If the current CEO of Thales decides he doesn't want his million dollar paycheck and leaves France do you not think somebody else will gladly take the million dollar paycheck? People don't make decisions based on tax rates. People make decisions based on after-tax outcomes and there are plenty of people who would love to move from a low after-tax outcome to a high after-tax outcome even if it meant the tax-take goes up. If people only cared about minimising tax then nobody would work.

1 person likes this

Share this post


Link to post
Share on other sites

well they may well keep their jobs, but tax residence may well be in other euro companies.

Exactly. Luxemburg and other tax havens are going to get even more high worth clients from France.

Share this post


Link to post
Share on other sites

If the current CEO of Thales decides he doesn't want his million dollar paycheck and leaves France do you not think somebody else will gladly take the million dollar paycheck?

There may be many who are willing to take the CEO's job, but unlikely to have it offered! Organisations are very selective as to who they select to head them. They are more likely to be creative in the remuneration package in order to attract whom they want. So payments in tax havens/clandestine accounts is more likely.

Share this post


Link to post
Share on other sites

Exactly. Luxemburg and other tax havens are going to get even more high worth clients from France.

If you punitively tax labour or capital it will eventually flee (unless it is fixed capital assets like buildings, land, etc.).

Share this post


Link to post
Share on other sites

If you punitively tax labour or capital it will eventually flee (unless it is fixed capital assets like buildings, land, etc.).

Those socialists better subscribe to Armstrong's model quickly! :)

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now
Sign in to follow this  
Followers 0