Sales Down, Prices Up, Wealthy Out

Sales are down on the Ile de France. The change in the capital gains tax law on February 1st of this year marks a sharp slowdown in activity. From February to April 2012, 26,400 existing homes were sold in the Ile-de-France, down 20% compared to 33,100 transactions in the same period last year, and a decline of 28% compared to the same period of 1999 to 2007 and expected to continue through to Summer.
The downward trend for all “départements” and the overall market for existing homes (21% for apartments in all of the Ile-de-France, -18% for houses).
The Paris market is even more severely affected. Sales of apartments are down to 25% compared to February-April 2011 and 42% relative to the period 1999-2007.
For houses, there is greater disparities within the region: the Val-de-Marne shows a decline in sales of 32% while in the Hauts-de-Seine home sales fell by only 3% by report in February-April 2011.

This isn’t at all surprising. It’s basic retailing. Raise the costs, prices must rise, reduce the sales. The decline of sales leads to a decline in taxation on sales (5.09% closing costs) and profits for everyone in the industry. Sometimes I wonder what they were thinking?
And while they (the authorities) want prices to go down in order to make housing more affordable, prices are stable in the region and up in Paris. Ha!
Price erosion observed since October 2011 has recovered in April 2012, with a slight rise in Paris and a stagnation in the rest of the region. For resale apartments, the price per square meter held in the Ile-de-France at €5,550. It stabilized in the inner suburbs (0.0% in three months) and the outer suburbs (-0.1%). It has however increased in Seine-et-Marne (1.1%) and Paris (1%).
In the capital, the selling price per square meter has increased from 8,
260€ to 8,380€ in March in April, a monthly increase of 1.5%. After four months of slight decline, prices have therefore found their level from November 2011. Projected by notaries, the selling price in Paris in late August 2012 should be around 8,400€/m2.
For resale homes, prices rose 0.5% in the inner and outer suburbs from January to April 2012. Only the Val d’Oise proves to be a little more sensitive than elsewhere with a decline of 1.4% in three months. The unit price of a house in Ile-de-France in April amounted to 309,700€.
Prices of existing homes in the Ile-de-France in April 2012 are 4.8% higher than in April 2011 (3.3% for houses, 5.5% for apartments). Annual increases in the prices of resale apartments have been reduced from 1.3% in Seine-et-Marne and 6.8% in Paris.

Meanwhile, there are more taxation reforms in the works. President François Hollande is reversing reforms made by former president Nicolas Sarkozy to encourage the wealthy French to stay home and to encourage a healthier work ethic and increase purchasing power by circumventing the 35-hour work week.
People with assets of more than €1.3 million will be assessed a wealth tax. Earners of more than €1 million will be taxed at 75%. Capital income will be taxed at the same rate as wages. Large companies (€250 million) will be assessed early and will pay a 30% tax on stock options, up from 14 percent. Executives receiving the options will be levied at 10%, now 8%, banks and oil firms will pay surcharges.
French residents living abroad won’t have the same benefits — their income levels will be tested before the State will send their children to French State schools free of charge.
Spending cuts are on the horizon, too. Civil service jobs will reduce by 2.5% and operating costs will be slashed. Hollande and French Ministers have had a salary reduction from €14,200 to €9,940 a month.
How will these tax measures affect the property market?
Again, it’s basic economics. My guess is that France will have fewer wealthy, and therefore less wealth and less purchasing power. Expensive properties will be less affordable and therefore prices will come down and the maintenance of property will suffer. This leaves the foreign buyer an opportunity to purchase properties at a bargain — but keeping in mind that any assets over €1.3 million are subject to wealth tax (a good reason to take a mortgage).
A bientôt,
Adrian Leeds
Editor, French Property Insider
Email: [email protected]

 
 
P.S. Don’t miss Parler Paris Après Midi Tuesday, July 10th from 3 to 5 p.m. Upstairs at La Pierre du Marais (corner of rue des Archives and rue de Bretagne, 3rd) when guest speaker, Timothy Smith, author and screenwriter discusses “Real life experiences that made a book.” Visit Parler Paris Après Midi for more information.