Property Prices in France Begin to Correct

Hand written price reductions in a French Estate Agents Window

After months of denying the reality of the real estate correction, professionals in the industry have finally admitted there is a correction undrway. Figures published last week by the Chamber of Notaries of Paris-Ile-de-France tell a different tale to the usual "we are immune," coming from the FNAIM. The housing market all but collapsed in the Paris region - 22 980 transactions were recorded in the first quarter of 2009 against 39 580 during the same period in 2008, a drop of 41% and the lowest figure since 1986.

Every area and housing type was affected negatively, although prices have yet to reflect the massive downturn in sales.  We have been watching  the downturn play out for the past several years in the US and most markets actually saw rising median prices as sales volumes dropped, so no one should get too excited about the drop in median prices. According to the statistics, housing prices are only down 1% over the same period last year. But in some districts Fifth, Eighth, Nineteenth and Twentieth, the reduction ranges from 4% to 5%. In Hauts-de-Seine, Val-de-Marne, Seine-Saint-Denis the decline was 3.5% and in Essonne, Seine-et-Marne, Val-d'Oise, Yvelines, 6.8%.

Property prices in the region have risen 300% since 1997, fueled as usual, by easy credit. Our thinking is the last time property was priced realistically in France was around 1995. This should give a good indication of where prices are headed. Start in 1995, add a reasonable 3-5% a year, and that will be where the downturn brings us - probably over the next 2-5 years. Needless to say, some markets will be more affected than others, but I do not see the credit markets easing all that much.

I am going out on a limb and suggesting a fall of 50% in value before the downturn is complete, which will bring prices in line with a more modest 5% increase every year since 1995. Greater falls will be seen in areas dominated by British or other foreign buyers that are suffering distress in their home markets. We have been seeing hand written reductions in estate agents's windows for some time now, mostly in the order of 10% reductions,but are aware of substantially larger reductions.