What Does 2017 Hold for French Property Prices?
2016 has been a bumper year for French property prices, up 6% in the capital and 0.6% elsewhere, great news after five years of relentless falls. What does 2017 have in store?
With transactions, prices, construction, foreign investment and rents all increasing in 2016, the onus is now on next year to equal or better the market’s performance. Overall, there will be 200,000 more property transactions this year than there were in 2015.
A large part of this success story is the record-low interest rates 2016 has seen, an 18-month falling streak only recently ending with rises among some institutions at the end of November. This climate has allowed buyers to renegotiate terms of their loan, allowing them more freedom to embark on their second or third property purchase.
Prospects for the year
However, even though we are now back to rising rates, we can be hopeful that 2017 will not see particularly big hikes by banks. Low rates have become the wind behind the market’s sales, and lenders will be keen not to upset the recovery as well as potentially lose out on business to rivals by raising too much or too quickly.
Especially since we are entering a presidential election year, seven of the last eight of which have seen a fall in transactions. The maintenance of low rates could mitigate the ‘election effect’ and ensure transactions stay high, and thus prices continue to move upwards.
Then there are Brexit and Trump, two political firestorms which could have a positive effect on France’s foreign investment prospects, and thus its property prices. Already we’ve seen price growth slow in London while Paris’ speeds up, though the UK government’s hike in stamp duty has had a role to play. The Trump effect is even harder to gauge in the long term. His election can partly be blamed for the recent rise in mortgage rates, the result on November 9 doubling the French government’s cost of borrowing overnight.
But trying to link politics and economics is fraught with variables. Not so with mortgage interest rates, which are the focus of most 2017 predictions. Some are predicting a spike in activity early in the year while the rise in rates is between 0 and 50 index points from where they stand now, around 1.31%. If rates go any higher, we could see a fall in transactions, leading to downward pressure on French property prices.
Others are less certain of this, and place more emphasis on the results of the presidential election. If Fillon wins and stays true to his word, the Paris rent caps will be a thing of the past and the waiver period for capital gains tax on property will be reduced from 22 to 15 years. These two measures will see investors flock to the French property market, helping prices maintain 2016’s performance. Keeping a close eye on the election and interest rate moves is your best bet in anticipating the trends in French property prices for 2017.
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