The mood in France has changed, a sense of optimism hangs in the warm summer air that marks a significant and welcome change from the introspection of recent years. Macron has a convincing mandate as President, with fragmented parliamentary opposition. More than that, the election outcome has disrupted the political system in France and swept the mainstream parties aside. This majority gives the country the best window of opportunity that it has had in decades to reform, to be a larger player on the world stage, and to restore some national pride.
The economy is recovering, growth forecasts are being revised up, private sector employment grew at its fastest rate in nearly a decade in June. Reform won’t be easy, to say it never is in France would be an understatement. But it is always easier when growth is turning up. Tackling the unemployment overhang will be the toughest of them all, Hollande failed to pass a less ambitious bill a year ago. Since then, a more moderate union, the CFDT, is now the country’s largest union in the private sector. And if voters were truly against those reforms, more would have voted for the far-right or far-left.
It is apt to compare the UK and France, they have similar economies. Since the financial crisis, France had a shallower recession and a slower recovery than the UK. But with real wages having grown faster in France, and higher disposable incomes, despite higher unemployment, some argue it has more potential to sustain its recovery. France has more Fortune 500 companies than the UK, if the Macron administration can succeed in pushing through cuts to the rather high corporation taxes, companies will become more competitive, hiring and investment will pick up.
Where does this leave the residential property sector?
Across the market as a whole, transaction volumes have recovered healthily, by over 50%, from the low point in August 2009. Prices have risen, but have lagged the volume recovery and remain in aggregate somewhat below the 2008 peak. Affordability, measured by interest and purchase costs to incomes, has improved since prices bottomed, a huge contrast for example with the UK market.
We can define animal spirits simplistically as the human emotion that drives confidence. It is the hardest variable for any economist to predict. Buyers from overseas often tend to focus more on the activities of other foreigners in the French property market.
The fact remains however, that even in many of the most ‘internationally populated’ regions, domestic buyers and owners are usually the largest component.
HB feels this is where improving animal spirits in France will come alive. The French property market is one of the few remaining asset classes that has ample room to recover further with multiple factors in favour. Interest costs remain attractive, the economy is improving, meaningful and much needed reform is on the cards. Property prices in central Paris are reaching new highs and closing in on London. If the tide rises, with domestic buyers becoming more engaged, it will lift all boats.
HB is the unique buyers agent active on the Côte d’Azur, Provence and the French Alps – these are desirable areas without comparison. As with most things in life, it’s easy to find reasons not to do something. If however you have longed for your own corner of France then there are now fewer compelling reasons not to do so.
Sources: OECD, IMF, FT, Le Monde, Notaires de France, CGEDD