FRENCH ELECTION: IMPACT ON PARIS HOUSING MARKET

Not much. Arab Spring and eurozone crisis more important

Contrary to conventional wisdom, the Socialist victory in France's presidential election last weekend will make little difference to the Parisian luxury housing market. This is reflected in the reaction of markets to that victory – as expected when a Socialist wins an election, financial markets fell the very next morning. But, within hours they rose again as brokers and investors accepted his policies would be little different to those promoted by the defeated presidential incumbent, the conservative, Nicolas Sarkosy. Although much has been made that president elect, Francois Hollande, wants to levy 75 per cent income tax on those earning euro1 million or more, the reality is that even if Sarkosy had won taxes would have been raised.

Nevertheless, the threat of higher taxes has already driven some wealthy French to buy homes in London where taxation is lower. Many of the 3000 French citizens who will be affected by the 75 per cent tax rate may leave. However, their departure will have less affect on the Paris luxury housing market than it might have done in the past, because domestic demand is less important than it used to be. According to Christies International Real Estate, two-thirds of luxury home buyers in Paris come from overseas.

What's more, whether French and overseas buyers continue to buy homes in Paris will have less to do with Socialist tax policy than powerful forces at work on the international stage. Principally these are the spiralling eurozone crisis and the political turmoil beyond Europe. These two currents, one pushing property prices up and the other, down, have been swirling round the city's housing market since early 2011.

First, fears that Greece will default on its debts and that this will spread like a highly infectious disease across the rest of the eurozone, with Spain, Portugal, Ireland, Italy and possibly Belgium defaulting too, have caused many people to think twice before buying a home in Paris, because French banks, who have lent heavily to these countries, could go bust and will need rescuing at huge cost to the French taxpayer (and those elsewhere). This has acted as a depressant on Paris property values.

Second, countering the eurozone debacle, has been a huge inflow of money from outside of France into the Paris property market, most of it coming from trouble spots. Overseas buyers include wealthy Middle Eastern individuals looking to escape violent excesses of the Arab Spring, rich Russians wanting to avoid excessive taxes and state bullying under President Putin, and Chinese wanting to leave behind corruption and autocratic government in Beijing. These international buyers have done much to drive up demand for large lateral apartments and trophy houses in the 6^th, 7^th, 8^th and 16^th arrondissments over the past 18 months.

Wealthy foreigners could be hit by higher taxes like the French. This may deter some of them from buying in Paris, but others will continue to do so, viewing higher taxes as a small price to pay for having their money protected in a safe haven. Many of these buyers fear they could lose all or most of their assets located in their home countries. In any case, higher taxes have been on the cards for some time, so overseas buyers have started to factor this into their calculations.

Also, although London and Monaco have lower taxes than Paris, the dirham, rouble and yuan stretch further in the French capital's housing market – prices are 50 per cent lower in the French capital than in its British rival. This is important to anyone wanting a spacious home, such as large Middle Eastern families. The highest prices in Paris touch euro3500 per square foot, compared to euro6500 per sq ft in London.

One other factor that will support prices within the iconic, nineteenth century city centre built by Baron Georges-Eugene Haussmann are strict planning controls – these allow few new developments to be built. In the long term, having the supply of property largely restricted to what is already there will help underpin values no matter what misfortune befalls the eurozone, what taxes are increased and what events take place elsewhere in the world.