Experts worried that property bubble in France set to burst

The boom in prices of property in France could be set to turn to bust with increasing numbers of experts expressing concerns about the state of the country’s property market.

News agency Reuters reports that that the value of property in France rose by 8.7 per cent between the first quarters of 2010 and 2011, more than any other OECD country for which figures are available.

Prices in Germany rose by a modest 2.6 per cent over the same period whilst values in Ireland,Greece and Spain fell by 11.1 per cent, 5.6 per cent and 5.3 per cent respectively.

Since 2009, prices of property in France are rebounding more strongly than elsewhere in the euro zone. Price growth hit a post global financial crisis peak of 9.6 per cent in the last three months of 2010 compared to the same period in 2009. Reuters reports that ‘the average increase for the euro zone in the same period was 2.8 per cent.’

Rising property prices in France posing problems

Moody’s Investors Service believes that the French housing market is overheating and that less cautious lenders could face large losses if house prices were to fall significantly. Analyst Stephane

Herndl said: “French banking groups’ inherent exposure to the country’s housing market is the principal reason why a potential correction in house prices poses material credit risk.”

The quandary facing the French is that a market correction could affect the country’s financial stability whilst increasing prices are contributing to problems for the middle classes.

Bank of France Governor Christian Noyer said: “The continual rise in property prices is contributing to a perceived loss of purchasing power which in turn is fuelling wage claims.

“Indeed, rising property prices are a source of social malaise and economic rigidity because they prevent household mobility and exacerbate social inequalities.”