French property markets slow down

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Decline in real estate markets as banks encountered difficulties in supplying credit, studies found on Tuesday.

23 July 2008

PARIS - The French property market for both residential and commercial real estate contracted in the first half of the year compared with activity in the same period of 2007, studies found on Tuesday.

In the residential sector, the mortgage market declined 10.9 percent as banks encountered difficulties in supplying credit, the Observatoire Credit Logement/CSA said.

It said the value of residential real estate loans came to EUR 145.71 billion at the end of June, down from EUR 153.38 billion a year earlier.

"The situation is totally paradoxical as operations are declining on all markets at a time when demand is maintaining its capacity to respond," said the head of the Observatoire, Michel Mouillart.

He noted that the average interest rate was largely unchanged from the first quarter to the second, 4.68 percent in the second after 4.67 percent in the first.

Mouillart said the problem reflected difficulties encountered by banks "in refinancing their loan operations".

The sharp downturn in the US subprime mortgage market, where there have been a wave of foreclosures, has forced banks to be less willing to make loans among themselves, creating a credit squeeze.

In the commercial sector, investments fell by almost half to EUR 8.1 billion from the first six months of 2007 in response to a tightening in credit conditions, according to Atisreal, a unit of the bank BNP Paribas.

The study found that the commercial real estate market had been hampered by increased interest rates, increased conditions by lenders in terms of shareholders' funds held by borrowers, and restrictions on the amounts lent.

[AFP / Expatica]

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