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Building in France: Like building castles in Spain?


Demand for new homes and apartments in France has failed to rebound after two poor years and industry professionals are now worried 2014 will be a "black year" for the sector.

Despite the government's "Target 500,000" initiative to plug a gap in the housing market by building half a million new properties and renovating 500,000 buildings a year before 2017, house-building in France remains lackluster.

Figures released on February 25 by the French Ministry for Territorial Equality and Housing show that the granting of building permits and the start of new building projects decelerated sharply in the three months to January 2014, further deepening a year-long trend.

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Walter Zerla | age fotostock | Getty Images

The number of building permits dropped by 15.2 percent in 2013 and in the first three months of this year, it was down 18 percent. Meanwhile the number of housing starts for the year only dipped by 2.4 percent, the three months to January recorded a 9.2 percent slide.

Sales have also stalled. The Federation des Promoteurs Immobiliers, the French developers' union, has warned that while sales of new builds have remained stable in 2013 compared to 2012, they were down 32.4 percent from 2010.

Costs have risen for developers as land has become more expensive and complex regulations add to building time. "Fifteen to 20 years ago, between the moment we met a land owner and the moment we sold the property, 4.5 years would have passed, nowadays it's 6.5 years. This lengthening weighs on cost," Francois Payelle, president of the Federation des Promoteurs Immobiliers told CNBC.

France may have started to grow again, but its recovery remains very timid at 0.3 percent in the fourth quarter of 2013. Furthermore, unemployment stubbornly continued to rise in January despite the government's pledge to stop further increases before the end of 2013, hitting a new high of 11 percent.

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Adding to uncertainty, the tax "environment moves too much", says Payelle, highlighting that the legislation on property capital gains levies has changed three times in the past three years.

Also, highlights Payelle, while interest rates remain very low, banks' lending criteria have gotten tougher and the withdrawal rate, when a potential buyer retracts its offer, has increased because more and more households are being refused loans.

This year, he warns, could be a "black year."

With the 2013 drops in both building permits and sales being made off designs and plans, many commercial projects may not see the light of day. "We anticipate a 10 percent decrease in sales, which would make it one of the lowest figures of the past 25 years", the president of the Federation des Promoteurs Immobiliers told CNBC.

It will be a difficult year as "pressure is building", echoed AXA Real Estate's Justin Curlow, saying that "affordability will remain challenging and as a result development activity is down, so starts will remain low."

"Some companies may not resist the shock. I fear that some may find themselves in great difficulties in 2014", Payelle warned.

Both admit that reaching the government's "Target 500,000" will be challenging. "We're getting further and further away", said Francois Payelle.

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For starts and sales to improve, France needs to either entice investors or subsidize developers, said Curlow but "the current fiscal situation in France is not strong enough to subsidize the housing market", he concluded.

Francois Payelle highlights that the government has taken note of developers' difficulties with Francois Hollande promising in January that production costs would be reduced by 10 percent within the next five years, but it simply does not go far enough.

The Federation has even handed minister Duflot a report with about 100 different propositions to slash costs. These include reducing the number of parking spaces in collective buildings to making sure regulations are kept up to date – for example, one regulation stipulates the number of phone sockets in the house while another insists on each new house being fitted for fiber-optic broadband.

But the flagship proposition is for the country to release more building land. "They need to stop saying there isn't any", said Payelle, "there are loads in France, " and the government must make it one of its priorities.

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