At least one in four Paris apartments listed by realtor Agence Etoile can’t be sold, even with mortgage rates at record lows, as buyers and sellers fail to agree on price, the company’s director said.
“I have some inventory that’s too expensive and sellers don’t want to lower prices,” Christine Perrissel said in an interview. “Buyers are just much more selective.”
Across France, an economy that’s stalled for two years, joblessness at a 15-year high, property prices near record highs and new taxes have made households reluctant to borrow to buy homes. While Europe’s debt crisis prompted banks to tighten credit, since the start of this year they’ve offered more attractive terms to lure customers and meet lending targets, after borrowing plunged in 2012.
The average home-loan rate fell 0.8 percentage point from a year ago to a record low 3.34 percent in the first two months of the year. Still, new mortgages granted in the 12 months through February slid 27 percent from a year earlier to 98.4 billion euros ($129 billion), according to the Bank of France.
New home sales fell 18 percent in 2012 to 77,900. Existing home sales declined 12 percent to 709,000, with the drop worsening to 22 percent in the year to February. The average housing investment funded with loans represented 3.73 years of the buyer’s income in March, the lowest since January 2010, a study by lender Credit Logement SA and polling firm CSA shows.
The data show that as rates fall, the market still hasn’t fully shaken off the gloom of 2012, when real estate purchases plunged as banks tightened mortgage lending and after former President Nicolas Sarkozy and his successor Francois Hollande, elected in May, added property taxes to cut the country’s deficit.
Hollande, the first Socialist president in France since 1995, has called on those “with the most to show patriotism” in tough times. He’s raised income taxes, those on capital gains from property, as well as wealth and inheritance levies. That prompted Gerard Depardieu, who played Obelix in films about one of France’s most beloved fictional characters, to move to Belgium.
“We’ve had a catastrophic start of the year in January and February with the tax squeeze,” said Marc Julien, founder and chief executive officer of Pierre Invest, a broker specializing in new properties for the Paris region, referring to the property taxes.
March and April saw some improvement as banks and real estate companies offered sweetened terms, he said. Julien, who was at a property trade fair this month, said he’s giving up half his commission to pay for kitchens and waiving transaction fees for each contract signed at the event.
Still, 52 percent of banks said demand for housing loans dropped in March, when some lenders tightened requirements slightly, according to a Bank of France survey published on April 11. Some banks increased margins on the riskiest loans.
“Banks remain cautious in granting loans because of unemployment and the start of a price decline,” said Sandrine Allonier, head of economic studies at online credit broker Meilleurtaux.
French home prices, which surged 163 percent in the past 15 years, have slipped 2.9 percent from a peak in 2011, according to the national statistics office Insee.
Banks are still “competing strongly to lure the best borrowers,” Allonier said, adding that lenders may make it more attractive for such property buyers. “Banks still have room for maneuver and mortgage rates can fall lower,” she said.
Liquidity at banks was bolstered after the European Central Bank plowed 1 trillion euros into the financial system through cheap three-year loans in December 2011 and February 2012.
The French 10-year government bond yield, a benchmark for home loans, fell to 1.704 percent at 12:57 p.m. in Paris, the lowest since Bloomberg began compiling data on the securities in 1990. The previous record of 1.709 percent was set on April 8, four days after ECB President Mario Draghi said policy makers “stand ready to act” to bolster the region’s flagging economy.
Banks “are making hefty margins at the moment, so they’re asking for more production as funding conditions are even more favorable,” Philippe Taboret, deputy CEO of Cafpi SA, France’s largest mortgage broker, said in an interview. “Each week, we’re hearing ‘we must lend, last year was a bad year.’”
The average term of home loans in March averaged 205 months, about 17 years, up from a seven-year low of 199 months in January, when rules were tightened on tax write-offs for investment properties and interest-free loans for first-time buyers, according to the CSA-Credit Logement study.
“Lowering rates and extending durations are ways to provide extra purchasing power,” Cafpi’s Taboret said. Lenders including Caisse d’Epargne and BNP Paribas SA (BNP) “are very willing to lend,” while Societe Generale SA (GLE) is more reticent, he said. Banks are coming up with one-off discount offers, while stopping short of a rate war, he said.
Joelle Rosello, a spokeswoman at Societe Generale, declined to comment. The bank’s lending unit didn’t have a stand at this year’s property fair. Caisse d’Epargne, which is offering 20- year fixed-rate mortgages at 2.95 percent, advertises its policy with a poster asking: “Who says the credit tap is closed?”
“The best clients, such as households with annual income over 60,000 euros and 15 percent down payments, can get an extra discount of up to 0.4 points and borrow at 2.7 percent over 20 years, ” Allonier said.
For first-time buyers earning less than 1,800 euros a months, banks “are a bit tougher,” Pierre Invest’s Julien said.
“Banks are now asking for at least a 10 percent down payment, and are unwilling to lend over more than 20 or 25 years, while they used to go over 30 years,” he said.
They’re more willing to lend to safer borrowers, Cafpi’s Taboret said.
“Markets are excluding the most fragile first-time home buyers as subsidies have been trimmed and amid unemployment concerns,” he said. “For good clients, banks won’t hesitate a second to fund even 100 percent of the property value, even over 30 years.”
To contact the reporter on this story: Francois de Beaupuy in Paris at firstname.lastname@example.org