Overseas buyers returning to top end of French property market

Uncertainty over potential tax changes in the second half of 2012 led to a fall in demand for prime property in France but it appears that buyers are now returning.

According to the latest Insight France report from Knight Frank, there’s been a measured but welcome change in the attitude of prime international buyers looking to buy property in France, despite the precarious state of the eurozone’s finances. The country’s announcement that property sales and ownerships taxes were likely to change, particularly for premium real estate, caused a bit of a buyer exodus and a short disruption in sales.

But this caused prices to drop and it’s thought that this is now enticing foreign purchasers, especially those from Northern Europe, back to the market. And this has translated into higher sales volumes.

The number of French sales completed by Knight Frank rose by more than 20% in the 12 months to March 2013 compared with the same period a year earlier.

This uptick in interest was also evident on Knight Frank’s Global Property Search website, a unique barometer of demand for prime property. The site recorded a 19% increase in French property searches in the first two months of 2013 compared to the corresponding period a year earlier.

Although French President François Hollande clarified his new tax plans in France’s September budget and has indicated that he will keep tax under review, it has taken several months for the finer detail of tax changes to emerge.

The changes are less unfavourable than was initially anticipated, and this has been met with relief by some purchasers who had braced themselves for tougher regulations. At €1.3 million, France’s wealth tax threshold is now higher than it was in the buoyant times of the mid-2000s and while Capital Gains Tax (CGT) has increased, its impact is mitigated to some extent where a double taxation treaty exists with the purchaser’s home country.

When considering the increase in CGT some buyers are assessing it against the lifecycle of their potential new home. Many plan to retain their home for a minimum of five to 10 years and therefore take the view that a new government may be in place and the current tax structure will be redundant by the time they choose to sell.

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