Denys Laroche has been trying to sell his 18th century one-bedroom apartment just off the Champs-Elysees for six months. If the 3.75 million-euro ($4.2 million) Paris home doesn’t attract a buyer soon, he may decide to wait for a new president next year.
"We have a socialist president who’s increased taxes," said Laroche, a business owner who’s about to retire and wants to spend more time at his country home. Candidates vying to replace Francois Hollande in the 2017 presidential election will probably ease taxes on the wealthy, he says. "If the election goes well, it’s going to be better for real estate."
France’s improving economy has sparked a modest recovery in the market for cheaper Paris homes, following a slump that started in 2011. However, luxury properties are still losing value. Elite homeowners such as Laroche blame Hollande — who took office in 2012 with a mandate to tax the rich and curtail corporate tax breaks — and are pinning their hopes on a widely expected change of government.
Homes priced at more than 2 million euros have dropped 3.7 percent in the six months through March, while the wider Paris market has gained 2.6 percent, according to data compiled by Databiens. Since the peak in 2011, luxury homes have lost about 12 percent.
A high-end apartment in Paris now costs about 12,650 euros per square meter, compared with London’s 24,500 euros per square meter, Databiens estimates. Demand for luxury homes in the U.K. capital has also been hurt by an increased tax burden for overseas buyers and wealthy landlords.
In Manhattan, a luxury-condo boom is fizzling as inventory increases and demand from global investors diminishes. In the first two months of this year, 150 contracts were signed for homes priced at $4 million or more, according to a report by Olshan Realty Inc. That compares with 214 in the same period of last year.
Wealth Tax
Real estate investors’ biggest complaint about Hollande is a wealth tax that has been around since the 1980s, and which the Socialist-Party politician raised after taking office. Formally called the Solidarity Tax on Wealth, the levy requires anyone with more than 1.3 million euros of assets in France to pay between 0.5 percent and 1.5 percent to the state every year.
"The wealth tax is an issue especially for wealthy families who invest in high-value properties in France," said Philippe Fernandes, a tax lawyer at EY in Paris. In addition to deterring foreigners who might otherwise invest in France, high levies also discourage local people from buying expensive properties because real estate is an easier asset for authorities to value and tax.
Before becoming president, Hollande advocated a 75 percent tax on individuals making more than 1 million euros. He ended up amending the plan to tax companies on salaries above that level. In 2014 he reversed course, introducing corporate tax cuts that were meant to stimulate the economy, and promised not to raise taxes again.
Presidential Candidates
Potential candidates who are leading the polls of the right-wing Republican party’s primaries, including former president Nicolas Sarkozy, former prime minister Francois Fillon and Alain Juppe, are all going further, with pledges to abolish the wealth tax and ease other levies. According to an April 17 poll, the three right-wing candidates would receive at least 23 percent of the votes during the first round of the coming election, defeating the incumbent.
To be sure, politicians often don’t keep their promises: Hollande’s predecessor Sarkozy also claimed he’d scrap the wealth tax and lower real estate taxes, but never did.
Still, "there’s been a surge of optimism ahead of the election" as real estate investors anticipate lower taxes, said Philippe Menager, a luxury homes broker at Menager Hug. "The wealth tax has been extremely bad for the economy."
That optimism is feeding the French housing market’s recovery, underpinned by an improving economy and interest rates that remain near record lows. The nation’s economy is set to grow 1.3 percent this year and 1.7 percent next year, after a rate of 1.1 percent in 2015 and almost no expansion at all the year before, according to the European Commission.
Those factors, combined with the euro’s weakness, are luring foreign investors back into the market, said Roddy Aris, head of Paris for Knight Frank LLP. Buyers from outside of France, led by Americans and Britons, accounted for about half of all apartment purchases of more than 2 million euros last year, he estimates.
"Around the world, the word has spread: Paris is affordable," said Marie Ange de Charry, head of Paris-based real estate agency Lieux Particuliers. French expats “are longing to come back, and now they think the situation will change in 2017," she said.
More Construction
Improved sentiment is encouraging developers to build more, fueling competition for already-tight land in Paris’s historic center. Cogedim, the city’s biggest builder of luxury residences, built more than 600 apartments in Paris in 2015 and plans to complete about 20 percent more this year.
"This is due to our strategy, but also to the market and the returning confidence among buyers," said Christian Musset, head of Cogedim Vente.
With its Exaltis project in the fancy 16th arrondissement, Cogedim is building apartments with large balconies, a communal garden, bay windows and a view on the iconic Bois de Boulogne, a public park created in the 19th century. Most of its 95 apartments, costing as much as 3.3 million euros, were sold within four months. The project is due to be completed in 2018.
The improved outlook isn’t helping Laroche and other sellers who bought nearthe market’s peak. Laroche has held a few dozen viewings since listing hishome, which is unusually large and expensive for a one-bedroom property.
"I don’t need such a large apartment in such a luxurious area," says Laroche.His favorite thing about the place, he says, is its panoramic view of the French capital. The Elysee Palace, President Hollande’s official residence, is a five-minute walk away.
