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France Ian Sparks reports from Paris on the collapse of the housing market.
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law passed by France’s socialist government aimed at protecting home buyers and renters has sent the nation’s construction industry into ‘meltdown’, housing experts have claimed. Legislation passed earlier this year sought to make housing more affordable by capping rents in expensive neighbourhoods. To protect home buyers, the law also boosted the number of documents that must be provided by sellers, leading to a decline in home sales and longer transaction times. House-building has now plunged by 19 per cent in the second quarter of 2014 compared to the previous year, and planning permission applications – a gauge of future construction – have fallen by 13 per cent, French Housing Ministry figures have revealed. And while President François Hollande’s government is now trying to tweak the laws, experts say it is too late to undo the damage which is also threatening France’s economic recovery that is already lagging behind the UK and Germany. Dominique Barbet, an economist at BNP Paribas bank, said: “Construction is in total meltdown, and it is difficult to see how the new housing law is not to blame. The fall in the building of new homes has knocked 0.4 points off our gross domestic product growth last year and cut the pace of expansion by a third in the first quarter,” he said. The construction slump is also hitting sales in the building materials and electrical equipment industries, which could lead to job losses in both sectors, company chiefs fear. Pierre-Andre de Chalendar, chief executive officer of building materials manufacturer Saint-Gobain, said: “Current figures are worrying and will be disastrous if nothing is done. Clients of the building sector are sounding the alarm bell. It is as though everything is being done to discourage investment in housing.”
Alain Dinin, chairman of property company Nexity, added: “The French residential real estate market has been in a particularly tough situation. A host of complex regulations have been introduced and, most importantly, buyer sentiment has suffered. All those factors have combined to slow the already historically-low rate of new homes entering the market.”
“Current figures are worrying and will be disastrous if nothing is done. Clients of the building sector are sounding the alarm bell. It is as though everything is being done to discourage investment in housing.” A strong construction industry is seen by analysts as one of the most effective ways of reviving France’s floundering economy that has seen marginal growth in the past two years and is now struggling with a record 3.3 million people out of work. Mr Hollande’s approval rating is also at the lowest level ever for any French president. Ludovic Subran, chief economist at Euler Hermes in Paris, said: “A recovery in construction would help the rebound but it won’t happen without government initiative. Building is a sector where the impact on growth and employment is felt immediately.” Pierre-Rene Lemas, CEO of the state-controlled financial institution Caisse des Depots, said he was now holding talks with public and private investors to raise funds to build tens of thousands of new homes in the Paris region, where the lack of available land and a rising population has boosted housing prices.
He said: “If we invest public money and funds from the Caisse, we must lure private investors. Some talks are starting with a view to conclude by the end of the year.” Housing minister Sylvia Pinel has also cut rules to reduce construction costs in a bid to revive the construction market. Cement giant Lafarge’s CEO Bruno Lafont told Bloomberg Television last week: “What is important for France is to reassure people, to reassure everyone who wants to invest and to restore confidence. We need simpler rules, lower construction costs, and incentives for institutional investors to invest more in housing.”
Flight of the wealthy The steep downturn in new house building comes only a year after a dramatic slump in the luxury property market after president Hollande brought in a 75 per cent income tax on all earning over a million euros, sending French millionaire home-owners fleeing abroad. As a result, the number of homes worth more than a million pounds being put on the market doubled to around 1000 in 2013. Paris estate agent Daniel Feau described the exodus as a ‘general panic’ that sent the construction of luxury homes plummeting and slashed the prices of those coming onto the market. British estate agent Sotherby’s also said its French offices sold three times more properties priced at 1.7 million euros in 2013. And estate agent Knight Frank said the tax plans had benefited Britain by sending French interest in luxury London homes worth more than five million pounds rocketing by 30 per cent in just three months. France’s European Affairs Minister Bernard Cazeneuve insisted at the time that there was no ‘exodus’, adding: “I want to assure everyone that France’s wealthiest citizens are patriots, and we are taking every measure possible to ensure that they, their businesses and n investment remain in France.” Industry Europe 25
