A recent report in the press has stated that UK buyers are returning to the French property market although while not at the same levels as 2007 some estate agents are reporting more interest. Can this really be true? Are UK investors selling up and moving to France even in the current environment?
While there have been some very strange events happening during the ongoing credit crunch there can be fewer more bizarre claims than UK buyers selling up and moving lock stock and barrel to France where the economy may not have been as badly affected as the UK, but is still slowing. There are a number of factors to consider when looking at this claim :-
French economy
The French economy has held up distinctly better than the UK up until now but there are signs that the wheels are starting to fall off. The flow of negative news from industry is increasing, unemployment is rising and the government has been forced to instigate a UK style bailout of its financial system. It has also been revealed that bankruptcies among real estate companies are up by 28% during the first half of 2008. Not really a magnet for UK investors?
However, on the more defensive side it has to be said that the French government is one of the more protectionist in Europe and will fight tooth and nail to ensure French jobs for French workers even though sometimes it sails very close to the EU regulations on such strategies. While this should offer limited protection to the French workforce in troubled times it will also see less opportunities for foreign nationals looking for employment.
Bailout
The French government has just announced a £250 billion bailout of the financial industry which will see massive liquidity pumped into the French money markets in the hope of kick starting a revival in fortunes. This includes the government acquisition of over 30,000 unsold or unfinished developments across the country in order to take some pressure of developers and also ensure the property market is not flooded at a time when buyers have affectively gone one strike.
However, there could be much more woe for the French government in the not too distant future with news that a number of developers in the country have been forced to lay off thousands of staff to ensure their own survival. Shares in construction giant Bouygues have halved this year, Nexity shares are down more and even US based giant Kaufman & Broad is struggling to make ends meet with its French division.
Property
Historically the French property market has been one of the more secure in Europe due to a number of reasons which include the liquid market in long term fixed rate mortgages which ensures that fewer French property owners see their mortgage repayments vary when compared to places such as the UK. The opportunity to affectively nail down your future mortgage repayment levels for a number of years going forward, if not the lifetime of your mortgage, is a major backbone to this lucrative property market.
However, there have been a number of experts suggesting that the French property market has been over heating of late and a look at the general figures shows prices have risen by 210% between 1995 and 2008, a pace which cannot continue indefinitely. There had to be a tail off at some stage and it appears this moment has come just as Europe enters its worst economic downturn in modern times.
More recent figures from the French property market show that prices have fallen by up to 8% this year but many are predicting that falls could reach 15% by the end of next year. These are price movements which are very rare in the French property market and while you would expect some form of security with long term fixed mortgages we may be seeing the longer term impact of reduced overseas investment.
France is the most popular tourist destination in Europe and one of the more popular in the world, something which has opened the market up to buyers from the likes of the UK, Germany and the US, all of which have seen their property markets suffer in the recent economic downturn. It can be no coincidence that as locals from these areas look to baton down the hatches and survive the economic downturn in their own countries the French property market is beginning to suffer.
Lifestyle
If you look at the French property market literature you will see a number of factors which seem to be attracting UK buyers which include the general lifestyle, health system and education opportunities in France. It is also the varied property options available throughout France with each and every area of the property market covered in one of more areas of the country.
While there are areas of the French economy and French society which can be difficult for foreigners to break into, in general there are many attractions from both an employment and lifestyle view point.
Conclusion
While there is no doubt that UK buyers have had a great appetite for French property in the past, the claim that UK interest is again picking up during one of the steepest economic downturns of modern times does seem a little far fetched. Apart from the fact that the short term attractions of France have diminished markedly because of its own economic problems, how would UK buyers be able to fund investment into the French property market?
It is no secret that homes in the UK are not selling in general and those which are selling have been taken out at rock bottom prices with buyers of distressed properties very much on the prowl. Until the economic situation in the UK picks up there seems little likelihood of large scale buying in France at a level we have become accustomed to in recent times.
UK buyers will be back but not until their own ‘house’ is in order and the financial backbone of those in the country has returned.