The French property market in late 2023 is facing several challenges, including inflation, rising interest rates, and tightening supply. However, despite these hurdles, the housing market in France is expected to remain robust, continuing a trend of strong performance over the past few years. In this article, we will delve into these challenges and their impact on the French property market in 2023.
- Cost of Living Pressures:
Inflation has been a global concern, and France is no exception. The Ukraine war and energy crisis have contributed to cost-of-living pressures in 2023. Despite these challenges, France has managed to keep inflation relatively in check, with a rate of 6.15% in November 2022, comparing favourably to higher rates in the UK and Ireland. The French government’s intervention in controlling energy price increases has been instrumental in this regard. While rising prices may affect the budgets of prospective homebuyers, many are now more conscious of energy efficiency and government incentives for insulation and renewable heating systems.
- Rising Interest Rates:
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Mortgage interest rates in France rose from historic lows of 1.1% in December 2021 to 2.5% in December 2022. Projections suggest rates could climb above 3.5% by the end of 2023. However, the impact on the property market may not be solely due to the rise in interest rates but also regulatory changes aimed at reducing consumer debt. These changes include restrictions on the maximum loan term and limits on borrowing based on income. While these changes may reduce the number of property sales, rates will still remain relatively high compared to previous years.
- Shortage of Houses for Sale:
One of the most significant challenges in the French property market nearing the end of 2023 is the shortage of houses for sale. The trend of people moving from major cities to rural areas after the Covid-19 pandemic has reduced the supply of rural homes and properties in provincial towns. Sellers are cautious because even though it’s easy to sell, finding another property can be challenging. Land prices for new builds are high, and construction materials have seen increased costs. This shortage of supply is expected to insulate house prices from declining into negative rates and may lead to a reduction in the number of house sales in 2023.
- House Prices in 2023:
Over the past five years, house prices in France have surged by 27.8%, with steady growth year after year. In 2022, house prices continued to increase by 6.4%. While there had been a slight decline in property sales in 2022 compared to the record-breaking year of 2021, they still remain high in 2023. In the 12 months up to Q3 2022, total property sales reached 1,133,000, a strong indicator of the market’s vitality.
- Popular Places to Buy:
The demand for properties in France varies across regions. In 2022, Eure-et-Loire, a rural department near Paris, saw a significant increase in property sales by French nationals. Foreign buyers concentrated their purchases in Dordogne, Corsica, Haut-Rhin (close to Switzerland), and Meuse (near Luxembourg). Additionally, new builds in France have seen increased activity, partly due to incentives like the PINEL law, which provides tax relief to private investors.
- Housing Mortgages in France:
The structure of the mortgage market in France has fueled higher property transaction rates. Most housing loans in France are repayment mortgages, allowing property owners to build up equity as property prices rise. While interest rates have started to rise, this is not expected to significantly dampen demand, as homebuyers continue to look for opportunities in the market.
- French Economy’s Impact:
The state of the French economy plays a crucial role in the property market. While inflation is a concern, economic growth is expected to continue, with GDP projected to grow by 0.6% in 2023. France’s strong economic performance compared to its European neighbors is partly attributed to quick government responses to challenges like the energy crisis. The country’s unemployment rate has fallen, and the rise in new companies indicates a healthy business environment.
Overall, despite the challenges posed by inflation, rising interest rates, and a shortage of housing supply, the French property market in late 2023 remains robust. Property sales may decrease slightly, but prices are expected to continue their upward trajectory.
France remains an attractive destination for property investors, particularly in rural areas, as people seek to make the most of their investments and lifestyle changes in a post-pandemic world.
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