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PROPERTY

Why France is facing a ‘property crisis’

House-building in France has dropped to levels not seen since 2010, meanwhile prospective buyers face prohibitively expensive mortgages. Here's why industry experts are calling it a 'housing crisis'.

Why France is facing a 'property crisis'
Roofing craftsmen work on the a home in France.(Photo by ROMAIN PERROCHEAU / AFP)

French property sales are down by 15 percent when compared with 2022, while new-build sales dropped by 31.3 percent in 2022. 

Already, several French publications, such as Franceinfo and Les Echos, have begun referring to the situation as a crise de l’immobilier (real estate crisis).

Here is what is going on with France’s real estate market.

Building slowdown

Experts say that the slowdown in building new homes can be attributed to three factors; fewer building permits being issued (which may be connected to changes in property tax rules), the rising cost of building materials and tougher environmental legislation.

Permits – In the past year, there has been a 11.5 percent decrease in new building permits issued. Those in the construction industry, like Olivier Durix, the head of Bouygues Immobilier, say this is due to elected officials who refuse to award them and are opposed to new building projects.

Durix told Franceinfo that administrative appeals and petitions against the inconvenience caused by construction projects, such as noise, dust and unsightly equipment like cranes, have multiplied in recent years. By Durix’ estimation, this has pushed local officials to be more reticent in signing off on new building permits. 

However, mayors like Jean-Philippe Dugoin-Clément (mayor of Mennecy in Essone), disagree that mayors simply do not wish to issue more permits.

“There’s no longer any point in building because we have lost the crucial link between tax revenues and the arrival of new residents, who generate new expenses for the municipality,” Dugoin-Clément told Les Echos, referring to the gradual phasing out of the residency tax (taxe d’habitation). 

Taxe d’habitation was previously paid by all householders and the money raised funded local authorities. Now it is being phased out for all but second homes, although local authorities do still collect taxe foncière – which is paid by property owners.

There’s also an environmental aspect – parts of the Var département in southern France have issued a moratorium on new building projects, since the area’s drought is so bad they are struggling to supply water in summer to the properties that are already there.

As of May 16th, reservations for new building projects with real estate developers in France fell below the 20,000 mark, the lowest it has been since 2010, according to France’s Ministry of Ecological Transition.

Rising costs – Inflation has it all aspects of life, but building materials are particularly badly affected. The supply of building materials was disrupted by the pandemic, and the Russian invasion of Ukraine then affected the cost of certain raw materials.

Many people across France are opting to postpone building projects, while developers are facing even bigger problems due to spiralling costs.

For example, when taking an equivalent surface area, the cost of building a house in Talmont-Saint-Hilaire, Vendée, jumped from €135,000 in January 2022 to €165,000 in January 2023, according to TF1.

In the past two years, the cost to install toilets has risen by 25 percent, and floor and wall tiles also went up by at least 25 percent. 

Environmental rules – Some members of the construction sector have also pointed to tougher environmental regulations (the ‘RE 2020’), which went into effect at the start of 2022, for playing a role in driving up construction costs.

The RE 2020 also introduced several new ceilings for CO2 emissions and energy consumption, which would take into account the lifetime of the building, starting with its construction.

A French government study found that the application of the RE 2020 on its own would increase construction costs by 3.4 percent for single-family homes. Nevertheless – the new regulations would improve energy efficiency, leading to savings of up to €200 per year, according to real estate site Bati-Web.

READ MORE: What you need to think about before buying that dream house in France

Mortgages

And while new houses are getting fewer, it’s also getting harder to get a mortgage, thanks to soaring interest rates.

The head of the Federation of Real Estate Developers, Pascal Boulanger, told AFP that the current situation is a “disaster” for those hoping to buy or build a first home are caught between rising construction costs and challenges with access to credit. 

With interest rates on the rise in France – going up from an average of 1.03 percent in October 2021 to over four percent as of May 2023 – and strict regulations for borrowing, qualifying for credit has become increasingly difficult for would-be home buyers.

READ ALSO How to get a mortgage in France

In order to meet the requirements, repayments – including insurance charges – must not exceed 35 percent of their income, and borrowers must take on a loan with a maximum of 25 years, or 27 years in certain cases.

Referencing access to credit, Boulanger, told Capital FR that: “These measures, which were taken at a time when demand for housing was strong and sustained, are proving to be totally counter-productive now that the market has turned around. It’s vital to reverse these decisions to avoid sinking further into the crisis.”

Between 2022 and 2023, the number of loans granted fell by 31.9 percent. According to the France’s central bank, the Banque de France, loan production reached its lowest level since 2015 in March 2023. These difficulties in accessing loans help to explain the fall in the number of real estate transactions, as well as a decrease in new home construction projects.

In response to the decrease in loans being issued, the Banque de France, began reviewing the usury rate each month to ease credit distribution, starting in February and set to continue until July 2023, instead of every three months as done previously. 

Despite this measure, the Crédit Logement/CSA Observatory released a report in April, noting that “the tightening of access to credit and the contraction of the banking supply are weighing on demand, which has been weakened by a loss in purchasing power and a rise in mortgage rates.

“Access to the market is therefore becoming more and more difficult,” explained the Crédit Logement/CSA Observatory to MoneyVox.

Slowdown

While it may be a good time to buy for those who can do so with cash, Robin Rivaton, real estate specialist for Le Figaro, called the situation could lead to a “social bomb”.

In particular, the slowdown in new home sales could lead to a shortage of rental accommodation, as households that would normally be able to purchase a home will continue renting.

The decrease in construction projects has also affected the availability of subsidised housing. Already, at the end of 2022, 2.4 million French households were still waiting to be placed in social housing. In 2022, only 95,000 approvals for the construction of new social housing, even though the French government had set a target of 125,000.

There is also concern over jobs in the construction industry at large – according to a report from French building federation, up to 100,000 jobs in the sector could be lost by 2024-2025 if trends continue.

The government says it intends to review mortgage rules, while President Emmanuel Macron addressed the subject on May 10th, saying that he planned to hold a conference for the concerned parties.

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PROPERTY

What restrictions are there on foreigners buying property in France?

Purchasing property in France as a foreigner has several extra hurdles - here's a look at some of the restrictions and other challenges you will want to be aware of beforehand.

What restrictions are there on foreigners buying property in France?

There are several things to consider before buying property in France. You may want to visit the area during different seasons to be sure that you enjoy it rain or shine, and you will want to consider how much you would end up paying in property taxes, as well as whether or not it will be a main residence or second home.

The law

Let’s start with the good news – there are no official rules in France against non French-citizens purchasing property, neither is there any requirement to be resident in the country in order to buy property – indeed foreign second-home owners make up a small but significant slice of the property market.

Revealed: Where in France do foreigners buy second homes

But in practice there are a number of challenges foreigners face when buying French property, especially if they need a mortgage.

Property sale process

Before making your decision, learn the steps to buying property in France and the expected timeline.

Roughly, there are five steps: making your offer, a cool-off period, signing a ‘Compromis de Vente‘, providing the notary (notaire) with your deposit, and signing the ‘Acte Authentique de Vente‘ (deed).

READ MORE: How long does it normally take in France to buy a property?

The French property purchase system is likely to be different to what you are used to – especially the role of the notaire.

Also Americans might be surprised to learn that in contrast to the US system of having a realtor who guides you through the entire process, in France – as in most of Europe – buyers are expected to do much work of the house-hunting work themselves.

Bureaucracy

There are a few extra steps added if you need a mortgage, but generally all foreign buyers should be prepared to have a valid ID (passport), as well as other documents including your marriage and/or divorce papers (to demonstrate your civil status).

At some point in the process, you will need to open a French bank account, even if that ends up just being for utilities after you’ve made the purchase. The earlier you can open a French bank account, the better.

You should know that purchasing property in France does not automatically give you residency rights. If you are not an EU citizen, then you will need a residency card or visa to spend extended time in France.

READ MORE: EXPLAINED: What type of French visa do you need?

Getting a mortgage

While there are no laws stopping foreigners from buying property in France for most people the biggest obstacle is getting a mortgage, as there are conditions that many foreigners cannot fulfil.

In France, the vast majority of loans are guaranteed by banks, and one bank’s offer to you may not be the same as another’s. You are free to contact several banks to find the best offer for your situation.

READ MORE: French property: How to get a mortgage in France

While there are alternative options besides banks, such as a ‘vendor loan’ (prêt vendeur) – where one sets up a credit contract directly with the seller of the property via a notary – this is much less common.

The biggest issue is that banks will require that foreigners prove that they will be able to legally remain in France for the entirety of the repayment period. As such, it can be very challenging those on short-term residency cards, to be accepted for a mortgage loan.

For the same reason, it is very difficult for non-residents to get a mortgage via a French bank.

Foreigners can also consider international options, or independent, specialised mortgage brokers, like those geared toward expats – however some have minimum income levels and minimum property purchase prices.

Another point to keep in mind is the fact that French banks also look favourably on ‘stable’ employment statuses, such as CDI (indefinite) work contracts, which, by their calculation, reduce risk of unemployment. It’s not impossible to get a mortgage if you are self-employed, but it’s harder.

Additionally, age can be a factor – lenders tend to be less likely to award mortgages to those nearing or above retirement age.

Americans – The situation is even more challenging for Americans in France, as banks can be reticent about working with Americans due to FATCA – which, according to the US dept of treasury, requires that “foreign financial institutions (FFIs) report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.”

This has forces French banks to collect and maintain more information about their American customers. If the banks fail to disclose information to the IRS, they risk exclusion from the US market as well as penalties.

In a survey about the effects of citizenship-based taxation on Americans in France, one respondent said: “Multiple banks have denied me a mortgage because I am American.

“We used the services of a mortgage broker and when we went in for the final presentation a few weeks ago, only one out of the many banks queried offered us a mortgage, and it wasn’t even a good offer.”

READ MORE: Divorce, stress and fines: How citizenship-based taxation affects Americans in France

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