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 31st July 2010
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Spanish property share 'crash' – could it happen in France?
The property market in Spain is going through a troubled time. In late April shares in some of the country’s leading property developers fell by up to 65 per cent. The panic selling fuelled fears of a fall or even a crash in the value of Spanish property, affecting hundreds of thousands of English-speaking foreign property owners in the country. For example, some quarter of a million British citizens alone are thought to own homes in Spain. Over supply The key problem, it seems, is that too many homes have been built, meaning that supply has outstripped demand. Developers are expected to build up to 800,000 properties in 2007 – some 200,000 more than 2006. One expert, Diana Choyleva, chief economist at Lombard Street Research, says the Spanish housing market is likely to face a downturn. ‘It is not good news for UK investors in Spain,’ she says. ‘The problem is in supply. We have had over-investment on a gigantic scale and it has already started a slowdown in house price growth. ‘We will definitely see house price growth stop and falls in nominal prices are likely in Spain over the next 12 to 18 months.’ French market However, despite the share fall, not everyone believes that the Spanish property market will crash. In any case, the key question for owners of French property is: could there be a similar jolt to confidence on this side of the Pyrenees? It is certainly the case that the housing market in France has – in most areas - slowed down in 2006 and 2007, certainly compared with the recent boom years. However, there are important factors that suggest that France is not likely to suffer the same problems as the Spanish market. For a start, levels of home ownership in France are lower than in Spain, where there has been a massive move towards buying property in recent years as the economy has prospered. In France, too, there is a strong demand to switch from rental to ownership, but this has been held back by unemployment, job insecurity and relatively tight borrowing restrictions. This has reduced the likelihood of a boom and bust, such as we may be seeing in Spain. Mortgages Nor is there the same level of indebtedness due to large mortgages that one finds in Spain – and in other countries such as the UK too. And while many new properties are being built in France, the country generally has tighter planning rules than in Spain - and in a number of areas demand is still greater than supply. Certainly property experts in France are confident that the housing market will remain strong. Matthieu Cany of Sextant French Property Agents says the two markets are very different. ‘In Spain, the properties are mostly off-plan and new build whereas in France the UK customers prefer to buy old stone properties,’ he says ‘There are also too many properties in Spain, in comparison to the actual demand, and this, combined with the strong price increase in the last few years, explains why the market is going down. ‘In France meanwhile, the resale property market is growing. It is currently at 6.5% - in 2006 it was 7.1% and in 2005 it was 10.4%- and this trend will remain for the next few years as the demand is higher than the number of properties available; the broadening older generation in the UK, for example, is particularly interested in old stone properties and gîte businesses.’ 'Stable' prices Meanwhile Nathalie Turchet, sales manager in the London office of MGM, the biggest developer in the French Alps, says that while property prices have started to ‘stabilise’ in France, she believes that is simply the start of a slowdown, and not a crash. ‘The second-home market is still going very strong, specifically in the French Alps where prices of holiday homes rose by 15 per cent on average last year when the national property price increase was around six to seven per cent,’ she says. ‘The demand is there and will carry on being there, with foreign buyers - notably the British - still leading the market. ‘Moreover, with the French population getting “older”, there is today a whole generation of what the French call ‘papy-boomers,’ the children of the baby-boom who are now retiring. Many have plenty of money and are buying properties.’ Potential Nathalie Turchet says that the French Alps and the South of France remain the most popular destinations, not only for the quality of the lifestyle and the natural beauty of the regions, but also because of the investment potential they offer. ‘In the French Alps, due to the shortage of both land available for development and resale properties and an ever increasing demand, prices will continue to rise steadily and the market is ideal for investment,’ she claims. Nick Leach of Pierre et Vacances Property is another who says that events in Spain are a one-off. ‘The factor surrounding the concerns in Spain are unique to the incredible boom in property construction experienced over the last 2 decades there, and is more a result of over-supply fuelled by speculative investment in a country that has experienced incredible property price growth that needs to return to more sustainable levels. This has been somewhat stirred up by the press in conjunction with some of the recent scandals in the Costa del Sol and reports of illegal building,’ he says. ‘France has also experienced excellent growth – especially in regions such as the Alps, Paris and Cote d’Azur but has grown in-line with demand and is a very different market to Spain as it is much more regulated and much of the growth has come in the last 7-8 years.’ Sarkozy Leach adds: ‘ Many believe the recent election of Nicolas Sarkozy will further stimulate French economy and the property market when he makes tax cuts and reforms in the labour market – and French property company shares have already risen on this news.’ In recent years the French property market may not have been the most spectacular, but it has been one of the most secure and reliable. The available evidence suggests that it is likely to remain so for the foreseeable future. Michael Streeter, Property Editor See also: French Property Trends 2007 Property Buyer`s Guide Home Page Looking for a property in France? Use FrenchEntrée's Property Finders to help you find your property and to help you through the buying process 
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