Paris Sees Shock Fall of 3.4% in Luxury Property Prices; Tax Policies Blamed

French President Francois Hollande’s increase in taxes for the rich is having an effect on luxury house prices in Paris, according to real estate consultants.

Prices fell 3.4% in the first half of 2012 and demand slowed, the latest market report from Savills covering the world's most desirable cities shows.

The news comes amid reports that rich people are increasingly considering leaving France over the tax hikes and many are considering moving to London whose own luxury property market is soaring due to an increasing number of overseas buyers.

‘Paris is the biggest loser of 2012. Further price falls now seem unavoidable in the French capital, and London is the potential beneficiary as international money seeks an alternative haven within the geography of Europe, but outside the eurozone,’ the report says.

‘The eurozone crisis has decreased confidence in 2012. Falls were compounded by new proposals to increase taxes on the wealthy by the incoming president François Hollande. This has depleted demand for top end residences,’ it explains.

Until the end of last year Paris had enjoyed some of the strongest house price growth in the old world cities monitored by Savills. These values outstripped annual rental growth and were driven by investor appetite, as well as an influx of wealthy international buyers.

 

‘But this came to a halt in 2012, with capital values falling by 3.4% in the first half of the year. This softening is partly due to the withdrawal of a previous economic stimulus, implemented in response to the eurozone crisis. The crisis itself has also discouraged some overseas investors, who are reluctant to put money into euro-denominated assets,’ says the analysis.

‘In addition, the appointment of François Hollande as the president has brought a change in policy toward the wealthy. Proposals include increasing tax on rental income from 20% to 35.5%, retrospective to 01 January 2012, and raising capital gains tax when people sell properties, from 19% to 34.5%. Meanwhile, those who have property and other assets in France worth over €1.3 million are facing significantly increased annual taxes,’ it adds.

The property price decline in Paris came as prices rose in rival cities with London seeing a 2.8% increase and New York a 1.1% rise. New York also saw a world record price for an apartment, Savills said in its report.

The world’s most expensive flat per square foot was bought by Russian fertilizer tycoon Dmitry Rybolovlev as a base for his student daughter at a price of $88 million, or about $13,000 per square foot. The high price for the 6,700 square foot penthouse in 15 Central Park West, was due to the city's lack of new build luxury apartments, Savills said.