Hugh Dent reports as the winter property slump reaching France, where the overall volume of business is down and market conditions for second homes have reversed "quite dramatically".

The cold blast hitting property markets in the United States, Britain, Ireland and Spain has also reached France, as shown by a share slump for a high-profile house builder last week.

   Data and anecdotal evidence suggest that the overall volume of business is sharply down.

   Prices are holding up in some areas such as central Paris largely on
interest from foreign buyers, but they are generally flat to falling.

   And in the distinct market for second homes in the sun, a segment which had surfed the general property boom in the last 10 years with price rises of up to 200 percent, some sellers are settling for up to 30 percent less than their asking price.

   A British estate agent in the Dordogne region of southern central France,
Mrs. Gil Kendall, said that overall market conditions for second homes had
reversed "quite dramatically". The rise of the euro was also straining some
owners with incomes in sterling and doing renovation.

   At Paris X-Nanterre university, economist and property specialist Michel Mouillart, told AFP: "2008 is likely to be the first year of recession in property after several years of expansion."

   Sales of new homes had fallen by nearly 28 percent in the first quarter to 26,700 units and if that pace continued, he said it would amount to "a shock similar to the crisis at the beginning of the 1990s."

   He said: "The origin of the problem is that lending organisations do not
have confidence in the European Central Bank's strategy for refinancing banks."

   A broker at on-line company Empruntis said that consequently, the average fixed interest rate on 20-year loans had recently risen above 5.0 percent for the first time since 2003.

   As global financial conditions turned down dramatically with the US
subprime home-loan crisis from last August, some French experts held that France would be spared a severe correction.

   This, they argued, was because French practice, and the lessons of the
property crisis in the 1990s, meant that banks had maintained a high level of prudence in lending.

   But now property experts are wondering openly, how far and for how long the market will go down, and they also expect to see a sharp fall in the number of estate agencies which mushroomed with the boom.

   Signs of a marked cooling have been emerging for months, and on Friday the national statistics office INSEE said bluntly: "France, too, is now
experiencing a real-estate market downturn.

   "Household residential investment, still growing last year, should fall
significantly in 2008, as heralded by the drop in housing starts since the
beginning of the year."

   INSEE said that the fall was set in a global context, first of a fall in
real-estate construction in the US, Ireland, Spain and Britain and secondly of the rise of oil and food prices. Together these factors cut household
purchasing power and asset values.

   A third factor was the global financial crisis and tightening of credit
conditions.

   The Ecology Ministry said in May that home construction should continue to grow this year by 1.2-2.1 percent from 4.2 percent growth last year, but data from the ministry also shows the number of housing starts falling by 9.9 percent in the first quarter on a 12-month comparison.

   A well-known name in the French home-building sector, Kaufman and Broad which builds middle-class estates, revealed a 71.3-percent slump in first-half net profits on Thursday. Its shares fell heavily, and slipped further on Friday to show a fall of nearly 30 percent over a month and of 54 percent over 12 months.

   The company recently offered 250 homes for sale by Internet at discounts of 5.0-7.0 percent, and has sold 60 of them.

   Company chairman Guy Nafilyan said that "the sharp slowing of the housing market in France" had been "more marked than anticipated in the second quarter" and forecast a full-year fall of sales of 5.0 percent from the 2007 figure.

   The company said that the results had fallen "essentially from a change in the attitude of banks making loans, to the rise of interest rates and a more marked inclination of buyers in the second quarter to wait."

   Forecasts for prices vary.

   On Friday, the head of online mortgage broker Meilleurtaux, Christophe
Cremer, said prices would fall by 5.0-6.0 percent this year and by 3.0-4.0
percent in 2009.

   But a director of a big network of savings banks Caisse d'Epargne, Guy
Cotret, has forecast that "the fall in prices is likely to be only 2.0-3.0
percent in 2008."

   The director general of agency chain Century 21, Herve Blery, told AFP:
"The national trend should be for stable prices throughout 2008." But there would be big variations from a 5.0-percent rise in central Paris to falls in
medium-sized towns.

   Regarding new properties, HSBC bank forecast in May that prices would fall unexpectedly sharply in the first half by 3.5 percent, owing to a
"historically" high level of stocks of unsold buildings, and difficulties
encountered by households in raising finance.

   Data from the FNAIM federation of estate agencies shows prices of homes, other than new properties, falling by 1.3 percent in May after a rise of 0.4 percent in April, on a 3.3-percent fall in the prices of houses and a
0.5-percent rise for flats. Over three months, house prices had fallen by 2.7
percent.

   Mrs. Kendall, an expert of 20 years in the Dordogne market for foreigners,
largely Britons seeking the sun of the French countryside, said that "the
number of sales in our part of the world has fallen dramatically."

   The percentage of foreign buyers was "greatly reduced," she said,
explaining that last year the four agencies she managed did 50 percent of
their sales with British nationals, 25 percent with Dutch and 25 percent with French.

   "In the last two years prices have not risen overall and are starting to
fall from the level two years ago. This explains why deals are being done at
20-30 percent below the asking price," she explained.

   A search of properties on the Internet targeted at foreign buyers supported this view: several advertisements announced price cuts of 20 percent.

   "I wouldn't be surprised if it's another three to four years before things
line up again," Mrs. Kendall said.

   "People thought prices could only go up," she told AFP. "Property was
cheaper than at home. Suddenly the situation has changed quite dramatically."

   Mrs. Kendall, herself British, explained: "What is affecting them now is
the high euro. It means they can't afford to carry on with the work they
wanted to do."

   And a sale made in euros converted strongly into pounds if the proceeds
were to be returned to Britain, and this could facilitate a price cut in euros.

   The pound has fallen by 14.66 percent against the euro in the last 12
months.

   Explaining that most of her sales were for use as second homes, she said "they are not a necessity, we depend on a feel-good factor."

   In addition, "cheap airline flights are going up and I think it will have
some effect."

   Estate agent Charles Gillooley, president of the FNAIM in the Dordogne and vice-president for the Aquitaine region, explained that many British owners had bought with British mortgages against increased valuations of their main homes in Britain. This left them potentially exposed to any deterioration of their financial position in Britain, as well as to international factors now affecting the property market.

   Some had bought property requiring much renovation. Some of those who now found that the costs and skills needed exceeded their capacities could face difficulties, particularly if a house is half-renovated or badly located, because potential buyers were people like them.

   Overall, "asking prices (in the second home market) are coming down, by up to say 20 percent, but taking prices are not much down on what they were. A lot of people are being more realistic in what they ask."

Aerial photo Dordogne: Luc Viatour

(AFP - expatica June 2008)