We are David, we are!
I think you could say the same about Nice David, or indeed many similar sexy cities around the world. We holidayed in Bonnieux, a town close to Menerbes, a few years after A Year in Provence was published...in August it was teeming....in January, there were no lights on. The town, along with many others in the area, are owned mainly but wealthy foreigners who may spend two or three months in the summer there, but will never be an active part of the community.
Over the years my architectural practice worked for a succession of waves of "inwards investment" into London property. We had the lot- Swedes, Danes (including one later wanted by the police), Italians (Neaoplitan "businessmen"), Arabs (one went bankrupt for £1.6 billion mainly to Societe Generale), Icelandic, Australian (also chased by Interpol), Swiss (had to serve a writ on a yacht in Florida), even Scottish(!) gangsters (had a visit from a governement representative in a gabardine mac) and even the Gaddafi family hiding behind somebody. They all wanted to invest in the UK because they saw it as "safe". Speaking with a UK friend who lives in Kensington this morning he says that so many of the houses there have no lights on and that the foreign owners of the properties have no involvement in the local community or life. Makes the members of SFN look quite good in terms of their contribution to the vitality of France.
For some reason the French do not seem to understand that if there are no middle classes to invest in business, there will be no jobs. France has fewer small to middle size companies than most other European countries. The smallest businesses stay tiny with no growth through fear of the consequences of employing anyone. It is short sighted in the extreme. France could so easily grow its way out of its present financial difficulties by encouraging new businesses, changing the stinging business taxes, making it easier to employ people without having to guarantee a job for life. Instead the government seeks out punitive measures to make the middle classes suffer.....I honestly believe there is a general mistrust if not dislike of anyone who is not just eking out a living. Hollande is succeeding in emptying the country of entrepreneurs, and at some point will be left to wonder where it all went wrong.
That final point is salient. One enormous problem is that far too much capital has gone into 'private' hands rather than governments, banks and a small number of major fund holders. The fact that we are now in the position of only 3% of all money in the entire world being real money (currency issued against gold reserves) means that the amount of debt is well beyond unmanageable. For every new X issued the same amount of X needs to be somebody's debt. So the hardest bit of bring the recession to reign will be for central banks to stop issuing more money that simultaneously creates more debt. Borrowing is continuing much as before but one of the things it has allowed is the creation of the vast fortunes of the fashionably called 'oligarchs' in the BRICs and other countries. The oligarchs are inflating demand in new markets but also often have a big share in the supply, thus are putting money into a circulation where it no longer goes through revenue systems, thus vast amounts of taxes lost globally. We read about it very often and corporate versions of the phenomenon in the UK are getting a lot of coverage at present. But what Starbucks and so on are doing, they are doing just about everywhere. The more discrete 'oligarchs' are doing very similar things and either solely or in consortia billions of Euros, Dollars, Pounds, etc are lost every day! The irony is, the more central banks create, the more there is for these corporations and individuals to grab! So governments, and France is not unique at all, are raising the means of bridging the deficits through raised taxes and squeezing people, so jobs lost, properties repossessed, etc. Great stuff, I just LOVE reading World Bank and IMF reports.
The message for the time being should be that for most people from Britain the idea of buying a property in France right now would be a bad idea. First of all prices can be expected to fall again. Secondly if a secondary home and if you ever make a profit on it you will be taxed more heavily on that profit than in many other places. If you let it out you will be taxed more heavily than you would be elsewhere as well. Thirdly if you have substantial assets elsewhere you will be wealth taxed and depending on what the income is will be expected to help paying off french national debt with your foreign income. This all equals very bad news for the French economy in that all the commerces involved in property, fitting out etc will suffer. I am generally an optimist but life seems to be teaching us all a lesson that optimism is generally unfounded. On the other hand things are bad in the UK too. There are a few exceptions like London residential where 20% of all purchasers are now foreign companies and Brits generally can't afford to live in cental London. The autumn statement in the UK doesn't improve things much. On top of everything les flics staked out our village square this morning in an unmarked car and knabbed several locals for not wearing seat belts, speeding etc, handing out huge fines. I also got a large electricity bill and a rude letter from les impots as I mistakenly thought that I had arranged to pay this year's impots by standing orders only to be told that the standing orders are on account of next year's and i have to pay 1700 euros immediately plus a fine of 70 euros. Great stuff!
Lending is very important as Neil says. Banks do not give mortgages or loans if there is a risk of default. Too many people are stuck between a rock and a hard place because they bought on debt when prices were very high, they cannot sell now because if their return is (for instance) two thirds of their loan then they are without ability to pay off and then buy something else, or if they buy then pay off part of the debt with the rest still have a large loan to maintain, etc. Ultimately people will go broke and lose properties anyway, the economy does not like that either, so fiscal planning is making some false assumptions about the outcome. The same goes, perhaps more so, for second properties as Nick says, waiting for tax breaks or a far off turn round in property prices.
As for the Eurozone issue. The Ireland and Greece version you use there Neil is the one the vocal anti-Euro press uses. However, seen in real terms the actual percentage of anybody's taxes used to 'support' either country is a small part of a single percent. The reporting is terribly inflated. However where even those rags are right is when they report the intransigence of the German government to agree to the ECB being used to resolve these crises. That should have been done early one, but given the voting system demands unanimous agreement before ECB loans are given it has been too little, too late. If the last French government had not supported the Germans we would not be where we are now. The recent agreement and money thrown at Greece is too little, too late and all because the lady says...
However, recent examinations of the fiscal performance of France show the country going down as Italy and Spain very slowly recover, Ireland and Portugal are no longer as precarious as they were and Greece still in the Eurozone 14 months after they were given five days at the longest before they would be out. Worse is, and they are now ninth in the GDP (PPP) ratings of the IMF and World Bank. Purchasing Power Parity (PPP) is the best basis for comparing economies because it is arguably fare more useful when comparing generalised differences in total economic output between countries. PPP takes into account relative costs and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income. In the normal GDP ratings France is sixth. The PPP rating shows the BRICs ahead of France, Mexico and Indonesia coming up fast. In straightforward GDP terms France is heading down and new competitors coming up fast. Sooner or later a government must make tax concessions or back to Nick's question 'if it is possible to tax a country to death'? Yes, as Italy and Spain nearly did by other routes and also by these same capital gains taxes having and adverse effect on businesses. The wake up call has been shouted loud enough already, but they clearly did not want to hear what people whose entire professional life is devoted to looking at these things says.
Don't forget Robert - they are only proposals for the moment, let's see how far they get. The FNAIM (which I believe is like an estate agents' club) are already up in arms about it as the government didn't consult with them first.
On supply and demand, I think the only thing economists are agreed on at the moment is that they have no idea where any of this global recession is going to pan out.
I'm not going to pretend to know what I'm talking about but I could possibly be affected by these proposals.
If as Nick suggests, people stop marketing their properties after the introduction of punitive tax rises. This would surely have an inflationary effect on the price of the houses that remain on the market. Supply and demand....???
I for one would welcome this, as my intention would be to never sell other that my principal residence.
With regard to the sale of property, it's not the price but the fact that the banks are refusing to lend. You have to realise that there is a point at which homeowners cannot lower their prices so they withdraw from the market. What do you think are "reasonable levels"? The market sets the level at which a property/business is sold. Your clients have had more interest but what is the increase in the level of sales?
As in most countries, there is no competition when it comes to borrowing. Why bother to lend to private individuals and small businesses when they can lend to the government at higher rates, and as we have seen, the financial institutions, will not let a country go bankrupt. All the problems in the Eurozone could have been avoided if Ireland and Greece had left within a few weeks of their problems becoming known. Neither of these countries have a hope in hell of trading their way out of their economic difficulties this century but our political masters could not bite the bullet and created yet another fudge which we are all paying for.
A picture is worth a thousand words Simon.
I disagree slightly with your conclusion on capital gains on second properties. Give people incentives to sell (ie don't tax them to the hilt) especially if the sale of the building will lead to it being regenerated. I feel this further tax will encourage people to hang on to their properties in the hope that tax breaks will come further down the line.
Unfortunately sellers' views of the value of their property, which are often driven by their debt level and the cost to buy elsewhere, doesn't tally with the buyers' views. I was called by someone with a client wanting to sell his 'off-market' property for 19 million. In 2008, before the effects of the bubble burst took hold in the south, we tried several times to sell the neighbouring property of similar size and style for 6M and failed.
I suppose that if someone with more money than sense falls in love with it they'll succeed, but imagine the CGT on that! For the last 3 years, people are only selling if they absolutely must - divorce, death etc. Luckily in this region they can manage a pretty good seasonal rental and many have opted for that while they optimistically await the return of financially beneficial climes.
....Oh yes, and a colleague informs me that the capital gains discounts to 0% over a period of 30 years now where previously it was over 15 years.
I agree with Nick: the aim behind this is to puncture the property bubble which is threatening the financial stability of the middle classes.
The graph published in Le Monde on 5/12/12 sums it up nicely: property prices have more or less doubled in relation to earnings since 2000: this is clearly unsustainable.
The quicker asking prices come down to reasonable levels the sooner the market will take off again. Le Monde reckons that prices have about 35% to drop … something that The Economist has been saying for a while now … so it is encouraging that mainstream media are now talking down the bubble.
In my business I have managed to persuade sellers to lower their prices by as much as 30% ... and it works: they get a lot more interest immediately from solvent buyers. The buyers are out there; they are just waiting for the bubble to subside.
As long as the govt does not tax the sale of principal dwellings then I don't think that punitive tax rates on other property is especially unfair: if the aim is to bring down prices then it can only be positive.
Well yes, business will agree straight away, they are losing every incentive to develop. So why have French innovations that make money when they will be taxed to the hilt, not meaning big business that knows how to avoid taxes already, but the small to middle sized ones who are the real innovators. Why even stay in France? Taxes are lower, employee support costs lower and whilst salaries often higher there are less holidays, longer working days and so on. Enterprises can work hard and becoming literally enterprising.
The people just mentioned have a house and three gites, the tourist trade is already being heavily penalised and the last few years have been bad. They have a sewage main going past so whoever buys has that to connect to all four buildings for a start, so it almost certainly excludes French buyers who have any idea of what the cost would be.
Not just Hollande, Sarko's lot did no better to make France work. IMF has warned and they are ignoring all the signs, it is serious indeed.
I’m wondering if it is possible to tax a country to death. This is actually a serious question not an attempt at humour.
We see it in business for example where the high cost of charges and taxes stifle the creation of new enterprise. Many people may remove their property from the market temporarily and wait for a change of government.
Instead of increased taxes, why not lower business taxes/costs and increase incentives in property renovation to have a two fold effect in the construction job creation sector. More people working, more tax revenue and less to shell out in social security. Buildings become renovated and brought up to scratch in environmental / green terms and the costs can be offset against the capital gains value.
Perhaps it’s just my squonky view on the situation.
Yes. Just yesterday OH took on one property where the people have a million debts so want at least 1.1 million and she thinks it is worth 800k top, maybe only 600k if the environmental report comes out badly as she suspects. What do those people do? Does the government truly have no idea how many there are now?
The first commentaries I have seen on it say that the thinking behind it is to get as many non-occupied properties sold in 2013. Then when it comes into play, the taxes are to be used to finance social housing and urban regeneration.
They are also hoping that in 2013 it will encourage people to drop their prices and shift their property. Not much comfort for those areas where prices are already at rock bottom.
No wonder a few people are seeking ways of selling a business and the fond de commerce separately and abroad. There is a hotel/restaurant, for instance, where the foreign owners are looking specifically to sell to foreign buyers and have (they say) a notaire and accountant who will help them do it without breaking any laws. I wonder if the government has any idea what kind of genie it is letting out of the bottle with this kind of capital outflow and tax avoidance beginning at a not very high level of property sale?