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Home arrow News arrow Europe arrow French property prices expected to fall steeply in next 12 months

French property prices expected to fall steeply in next 12 months

Sunday, 12 October 2008
French property prices to fall steeply
French property prices to fall steeply

The property market in France is beginning to show signs of stress although it has not been exposed to the US sub-prime crisis in the same way that other European markets have.

The national association of real estate agents is now estimating that property prices will fall 7% to 8% this year and that by the end of 2009 the decline could be as much as 15%.

A number of studies also show declining prices. The number of transactions during the first half of 2008 was down 25% from the previous year.

The industry is also being hit by job losses and financial problems. According to credit-insurance group Euler Hermes, bankruptcies of real estate firms soared 28% during the first half of this year.

Nexity, a leading French real estate developer, issued a profit warning a few days ago and said it had frozen a third of its planned construction projects as orders slumped 29% during the first nine months of the year. 'The downturn of the real estate markets is sharper than could have been anticipated at the beginning of the summer,' the company said in a statement.

There are concerns that up to 180,000 jobs could be lost in the French real estate sector at a time when unemployment in the country is rising.

The sector is eagerly awaiting the outcome of the emergency meeting in Paris today of the leaders of the 15 Euro zone countries. They are expected to agree a UK style rescue plan for banks to restore confidence in the finance markets and try to kick start lending.

French President Nicolas Sarkozy, who is hosting the meeting, has already announced measures to try to help the real estate industry including plans for the government to buy as many as 30,000 unfinished homes for which developers have been unable to find buyers.

Developers are badly affected. The construction sector accounts for 6% of France's economy, compared to 5% in the US. Shares in construction giant Bouygues have lost half their value since the beginning of year. Nexity shares are down even more steeply. The French affiliate of US homebuilder Kaufman & Broad recently announced layoffs.

It is an unusual position for France to be in. The housing market is usually stable, nearly all home loans are fixed-rate, and foreclosures are rare.

But the housing market had clearly overheated, with prices rising 210% from 1995 to 2008 mainly due to an influx of foreign buyers especially from the UK, Germany and the US. Many part of France are nicknamed Little Britain because of the high number of UK owners.


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