Paris luxury property luring overseas rich as French flee taxes

The Eiffel Tower stands near apartments in the 8th arrondissement district of Paris. The re-emergence of buyers from the Middle East, the US and Russia together with a more than 10% drop in prices in a year is rekindling sales of multi-million-euro properties in the French capital.

Bloomberg/Paris

The chairman of broker Daniel Feau, an affiliate of Christie’s International Real Estate, says the firm found a Qatari buyer for the 19th-century mansion that features a dozen bedrooms on three floors, a terrace with a panoramic view of Paris, a swimming pool and a 1,000sq m garden.

The re-emergence of buyers from the Middle East, the US and Russia together with a more than 10% drop in prices in a year is rekindling sales of multi-million-euro properties in the French capital. The market faced a glut after wealthy French people, including actor Gerard Depardieu, sought to offload properties as they left the country, fleeing Socialist President Francois Hollande’s efforts to add to already high taxes since his May 2012 election.

“We really had 12 dreadful months between April 2012 and April 2013,” Jottras said in an interview. “Then the market woke up nicely thanks to falling prices. Foreigners are looking at France anew because they’ve realised that, at the end of the day, the tax hell is for us, not for them.”

While Paris notaries figures show the number of apartment sales in the capital in the first half of 2013 was 22% below the average of the past 10 years, such transactions rose 5% in the second quarter from a year earlier.

Hollande unveiled €30bn of new taxes for 2013 on companies and households - including asking employers to pay a 75% tax on employees’ earnings of more than €1mn - as he seeks to shrink a budget deficit that was 4.8% of the country’s gross domestic product last year.

At the end of 2012, Depardieu, who won the Golden Globe award for the best actor in 1991 for his performance in the movie Green Card, became the most high-profile tax exile, moving to Belgium before taking up a Russian passport in January.

He put his 19th-century hotel de Chambon mansion in central Paris up for sale, adding to the inventories of such properties listed for sale.

The total value of Daniel Feau’s listing swelled to €5.4bn in the first quarter, up 42% from a year earlier, and has “slightly” trended lower since, Jottras said.

Barnes, another luxury-property broker, has 1,250 listings of more than €1mn in Paris and the nearby Yvelines and Hauts-de-Seine counties, twice as many as 18 months ago, according to its President Thibault de Saint Vincent.

“We’ve never had so many quality products on the market in Paris,” Saint Vincent said during a visit to a 425 square-meter duplex apartment in western Paris.

Once home to fashion designer Pierre Balmain, the apartment had been renovated with gold-plated dining-room walls, Indian and Brazilian marble in the bathrooms of its four suites and carries a price tag of €12.9mn.

“People are leaving for a number of reasons: taxes, the economy, family,” Saint Vincent said. “One never knows whether tax laws are definitive or whether they will worsen.”

Those concerns have hurt Paris property prices, which fell more steeply in the capital city’s most affluent areas.

In the chic Saint-Germain-des-Pres and Champs-Elysees areas, Paris’s priciest, average apartment prices fell 18% in the second quarter from a year earlier to just over €12,000 a square meter, according to notaries and national statistics office Insee. In the Ecole Militaire district near the Eiffel tower, they fell 11% to €10,510.

That compares with the 3% average price drop in Paris from the August 2012 peak, after they trebled since 2000.

The drop lured to the City of Light buyers not only from China to Russia but also Middle-Eastern investors escaping unrest in countries from Syria and Egypt to Libya and Tunisia.

“We’ve really seen an influx of foreign buyers snapping up properties, especially in western Paris,” said Alexander Kraft, chairman of Sotheby’s International Realty for France & Monaco. “They’ve seen that prices in France compared to other major cities such as London, New York, Hong-Kong are still comparatively affordable.”

Prices in London’s upscale Knightsbridge and South Kensington are about €20,000 per square meters, and start from €15,000 for “something decent” on Lexington avenue in New York’s Upper East Side, compared with about €10,000 for similar properties in Paris’s 16th arrondissement, Barnes’s Saint Vincent said.

American showbiz personalities and executives of technology companies, who may have steered clear of the Paris property market following the drop in the dollar in the early 2000, are also coming back, he said.

“Americans have come back at all sorts of price levels,” said Marie-Helene Lundgreen, director of Daniel Feau’s international department Belles Demeures de France, during a tour of a private mansion that’s up for sale in a gated community near the Arc de Triomphe. The mansion includes an indoor swimming pool and a guest house, and is for sale at €33mn.

“Some have budgets of 30, 40 or even €50mn,” Lundgreen said.

One of Paris’s most expensive estates on Sotheby’s listing is a €75mn mansion of 3,200sq m with a swimming pool and a sauna in the basement, 2,000sq m of gardens and a roof terrace.

The layers below the top-of-the-line properties, meanwhile, have been hit hard as the market has been damped by an increase in the capital-gains tax on second homes, increased levies on vacant properties, tightened requirements for tax reductions for buy-to-let investments and a planned law that will cap rents.

“Since the presidential election last year, the market for normal luxury apartments of between €1mn and €3mn has totally crashed,” said Sotheby’s Kraft. “Really wealthy Parisian families either completely left the country, or said: this isn’t the time to buy, I’m going to lay low.”

As falling housing transactions hurt government tax receipts, Hollande on September 1 introduced a break on the property capital-gain tax to revive sales.

“Since September, the market for this normal luxury property is beginning to revive a little bit,” Kraft said.

Residents who’ve remained in France are enticed by near-record-low borrowing costs and price drops affecting apartments that need fixing-up the most, Jottras and Saint Vincent said.

A 260sq m apartment in the Trocadero area with a view of the Eiffel tower needing to be fully renovated took seven months to sell at €8,450 a square meter, while it may have fetched €11,000 18 months earlier, Saint Vincent said.

“What we’ve seen in the past three to four months is that when we are able to close a transaction, the difference between the asking price and the closing price will at least be in the order of 15%, sometimes 20%,” Kraft said. “Really it’s a buyers’ market.”

And many of them are coming from outside France. Foreigners accounted for 7.7% of housing purchases in Paris in the first half, inching toward the record 8% in 2003 and 2008 and up from 7.3% last year, according to Paris notaries.

That might slowly start to stabilise prices in the French capital, said Jottras.

“The price drop is probably poised to be halted,” he said. “Still, the market isn’t turning bullish.”