Foreigners find luxury bargains in Paris as wealthy French flee taxes

Luxury properties lure overseas rich in a buyers' market as French join Gerard Depardieu in flight from taxes

PUBLISHED : Wednesday, 23 October, 2013, 4:49am
UPDATED : Wednesday, 23 October, 2013, 4:49am

When a €44 million (HK$462 million) Parisian townhouse near the Champs-Elysees was snapped up just six weeks after it was put on the block, Charles-Marie Jottras knew the city's luxury property market was turning around.

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, which features a dozen bedrooms on three floors, a terrace with a panoramic view of Paris, a swimming pool and a 1,000 square metre garden.

The re-emergence of buyers from the Middle East, the United States and Russia, together with a more than 10 per cent drop in prices in a year, is rekindling sales of multimillion-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.

"We really had 12 dreadful months between April 2012 and April 2013," Jottras said. "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 statistics show the number of apartment sales in the capital in the first half of this year was 22 per cent below the average of the past 10 years, such transactions rose 5 per cent in the second quarter from a year earlier.

Hollande unveiled €30 billion of new taxes for 2013 on companies and households - including asking employers to pay a 75 per cent tax on employees' earnings of more than €1 million - as he seeks to shrink a budget deficit that equalled 4.8 per cent of domestic product last year.

At the end of last year, Depardieu became the most high-profile tax exile, moving to Belgium before taking up a Russian passport in January.

He put his 19th-century mansion in central Paris up for sale, adding to the inventories of such properties on offer.

The total value of Daniel Feau's listing swelled to €5.4 billion in the first quarter, up 42 per cent from a year earlier, and has "slightly" trended lower since.

Barnes, another luxury-property broker, has 1,250 listings of more than €1 million in Paris and the nearby Yvelines and Hauts-de-Seine regions, twice as many as 18 months ago. "We've never had so many quality products on the market in Paris," its president, Thibault de Saint Vincent, said during a visit to a 425 square metre duplex in western Paris.

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

"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 per cent in the second quarter from a year earlier to just over €12,000 a square metre. In the Ecole Militaire district near the Eiffel tower, they fell 11 per cent to €10,510.

That compares with the 3 per cent average drop in Paris from the August 2012 peak, after prices had trebled since 2000.

The drop lured to the City of Light buyers not only from China and 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 metre and start from €15,000 for "something decent" on Lexington Avenue in New York's Upper East Side, compared with €10,000 for similar properties in Paris's 16th arrondissement, 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.

"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 €33 million. "Some have budgets of 30, 40 or even 50 million euros," Lundgreen said.

One of Paris' most expensive estates on Sotheby's listing is a €75 million mansion of 3,200 square metres with a swimming pool and a sauna in the basement, 2,000 square metres 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 dampened 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 €1 million and €3 million 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 transactions hurt government tax receipts, Hollande on September 1 introduced a break on the property capital- gains 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, Jottras and Saint Vincent said.

A 260 square metre 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 metre, 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 per cent," Kraft said. "Really it's a buyers' market."

And many of the buyers are coming from outside France. Foreigners accounted for 7.7 per cent of housing purchases in Paris in the first half, inching towards the record 8 per cent in 2003 and 2008 and up from 7.3 per cent last year.

That might slowly start to stabilise prices in the French capital, Jottras said. "The price drop is probably poised to be halted," he said. "Still, the market isn't turning bullish."