Buying frenzy for new build properties in France reported

Tax breaks for French property buyers has created a buying frenzy and led to a scarcity of new build properties in some part of the country such as popular locations in the Alps and Paris.

It means that British buyers are finding themselves in competition with French buyers for the most sought after developments and some have been missing out on the best units, according to French mortgage specialists Athena Mortgages.

Director John Busby points out that in 2007 more than 125,000 new build units were sold in France marking the high point in property sales for that property class. The numbers almost halved the following year to 79,000.

However recent figures suggest that the crisis in the sector may be over with just over 115,000 units sold in 2010.The future for the sector looks bright with many new developments coming online since the beginning of the year which will encourage many overseas and British investors looking to buy new build property in France.

But British buyers have been in competition with French buyers who have had additional tax breaks offered by French President Nicolas Sarkozy. Under the Loi Scellier, French tax payers can offset 25% of the property value against their income tax liability which has encouraged many high rate tax payers to buy. However, the amount which can be offset will be reduced to 20% for 2011 which should allow overseas investors more choice.

‘The ultra low interest rates combined with excellent tax breaks has created a buying frenzy in France which has meant that many investors from Britain had been missing out on the prime units, preferring to wait until something more suitable comes along. At times our clients have found there to be a lack of choice in some developments as French buyers have been snapping up the best available units immediately,’ explained Busby.

But the outlook for 2011 is looking better. ‘This has changed since the beginning of the year according to many of our partners selling new build property. Large leaseback developers are reporting an increase of stock and choice not seen at the end of last year which in turn is leading to an increase in sales to British and overseas buyers who can now find the property they want,’ he added.

Meanwhile French interest rates are still rising. Over the last month banks have seen increases of 0.40% in the OAT, one of the main indices in France, which has led to further increases in the cost of fixed rate and capped rate mortgages. The French OAT index, which is based on the total obligations of the French treasury for bond issues over different durations, forms the basis for much of the long term lending at either capped or fixed rates of interest.

Busby said that 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. ‘Many banks have also 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%,’ he added.

It still remains unclear as to the exact timing of further increases to the European Central Bank base rate which continues to remain steady at 1%, though he reckons there may be increases to fixed rates if the expectation of further inflation and rate rises from the ECB become apparent for the medium term.

‘Should the spectre of a double dip recession raise its head again or if a continuous stream of unhelpful economic events casts doubts on the recovery, we may see long term interest rates begin to fall again. On the other hand if we continue to see a lack of liquidity in the market coupled with concerns over risk profiles and inflation we may find that rates will continue to rise,’ Busby explained further.

‘In effect it is increasingly difficult to judge which direction interest rates will move in the short term unless you have a crystal ball as there are now so many factors at play. For this reason, we recommend that our clients still consider our capped and fixed rates. In spite of any recent rises, these product types offer long term peace of mind which has a premium all of its own,’ he added.