French Property Sector Takes a Hit from Hollande’s Taxes

Talk about unintended consequences. The highly repressive tax regime of French President Francois Hollande has not only spurred wealthy residents to flee or scamper out of the country (e.g. actor Gerard Depardieu, and also former President Nicolas Sarkozy was recently exposed as planning to move to UK) which even prompted for the downfall of the ousted Budget Minister for avoiding taxes by moving personal money abroad, but such policies has also prompted for stagnation in the property sector

 

From Bloomberg

At least one in four Paris apartments listed by realtor Agence Etoile can’t be sold, even with mortgage rates at record lows, as buyers and sellers fail to agree on price, the company’s director said.

“I have some inventory that’s too expensive and sellers don’t want to lower prices,” Christine Perrissel said in an interview. “Buyers are just much more selective.”

Across France, an economy that’s stalled for two years, joblessness at a 15-year high, property prices near record highs and new taxes have made households reluctant to borrow to buy homes. While Europe’s debt crisis prompted banks to tighten credit, since the start of this year they’ve offered more attractive terms to lure customers and meet lending targets, after borrowing plunged in 2012.

The average home-loan rate fell 0.8 percentage point from a year ago to a record low 3.34 percent in the first two months of the year. Still, new mortgages granted in the 12 months through February slid 27 percent from a year earlier to 98.4 billion euros ($129 billion), according to the Bank of France.

New home sales plunged 18 percent in 2012 to 77,900. Existing home sales declined 12 percent to 709,000, with the drop worsening to 22 percent in the year to February. The average housing investment funded with loans represented 3.73 years of the buyer’s income in March, the lowest since January 2010, a study by lender Credit Logement SA and polling firm CSA shows

The data reveal that as rates fall, the market still hasn’t fully shaken off the gloom of 2012 when real estate purchases plunged as banks tightened mortgage lending and after former President Nicolas Sarkozy and his successor Francois Hollande, elected in May, added property taxes to trim the country’s deficit.

Hollande, the first Socialist president in France since 1995, has called on those “with the most to show patriotism” in tough times. He’s raised income taxes, those on capital gains from property, as well as wealth and inheritance levies. That prompted Gerard Depardieu, who played Obelix in films about one of France’s most beloved fictional characters, to move to Belgium.

“We’ve had a catastrophic start of the year in January and February with the tax squeeze,” said Marc Julien, founder and chief executive officer of Pierre Invest, a broker specializing in new properties for the Paris region, referring to the property taxes.

French tax policies signifies as another ticking time bomb to a full blown debt crisis brought about by the nation's unsustainable welfare state.