New socialist government won’t deter investors to France, panel says

Plans by France’s new socialist president Francois Hollande to raise income tax levels for top earners to 75% will not deter foreign investors interested in investing in the country’s real estate sector, Olivier de Molliens, deputy CEO of Paris-based Keops Colliers International, told attendees at the PropertyEU Investment Briefing held at Squire Sanders' London office on Thursday.

‘It is too early to talk about the possible effects, but France had a socialist government for 15 years under Francois Mitterrand and in the end not all that much changed. Some investors may be put off by the new government or even quit, but the French market is strong and solid. Investors are attracted by the fundamentals of the French real estate market, not by the level of taxes.’

Francois Rispe, MD and Regional Head of Southern Europe for US logistics group Prologis, endorsed this view. 'In the short term, there may be some impact but there will not be any major changes...I think the government will be pretty good for the economy in the medium to long term.'

While France has, like the rest of Europe, been affected by the global financial crisis, the impact on the Paris office market has been minimal, De Molliens said. He pointed out that the French real estate market is the second-largest in Europe and that the Paris office market, for example, is more diversified than London in terms of tenants. ‘Overall, the vacancy rate is around 7% which is good and in the CBD it is even lower at 4.6%,’ he noted.

Nevertheless, De Molliens expects real estate transaction levels to dip in 2012 following a strong increase in 2011 which was propelled by a year-end flurry of deals ahead of tax changes. Under the new laws, local vendors to SPCI and OPCI investment vehicles no longer receive a tax break from January 1, 2012, effectively ending the advantage they enjoyed until then at the expense of foreign investors.

All in all, the French market generated around EUR 12 bn of transactions in 2011, less than half the level realized at the peak of the market in 2007-08, but still around the same level as the pre-boom year of 2005, De Molliens noted. Foreign investors accounted for just over 30% of transactions in 2011 compared to more than 60% in 2004-05 and 2007.

The full report on the France Investment Briefing will appear in the August/September issue of PropertyEU. Please click on the following link to subscribe: