As the French economy slumps into the second recession in four years, fears are rising that the country’s property market is also set to plunge.

Real estate services provider CBRE monitors the French residential property market and says the country’s unstable economy could lead to a price drop for the country’s beleaguered home owners.

Property prices have fallen in most French regions in the past year and the current prediction doesn’t provide much home hope.

Analysts at the firm say the weak economic environment and the drop in consumer spending power will not help the ‘feeble start’ for property sales in 2013.

The report highlights the growth in unemployment as a major concern for the country, while adding the drop in agreed mortgages, fuelled by over-cautious banks, will also not help prices in the short term.

Mortgage approvals drop by a third

They add that the fall in new mortgages approved has seen a 32% plunge since 2011.

The CBRE report states: “While banks have tightened their mortgage lending criteria and are asking for higher deposits, the main reason for the fall in mortgages is because of the slump in demand from home buyers.”

To underline the precarious state of the housing market, the construction of new homes is also heading downwards.

In the first three months of this year, only 83,900 units were started – a drop of 11.2% from last year.

Though 2012 is described as ‘brutal’ for developers after a fairly good 2011 – when housing starts fell by 18% on the year before – no-one is predicting a bumper year for construction this year.

Also, the number of investors in French property is in rapid decline.

Investors move out

From 2009 to 2011, investors made up 60% of the buying market, this fell to less than half last year and the numbers are still falling.

One reason for this decline is that letting returns have fallen as taxes have risen, and investors have become wary of a potential limit being imposed on rent levels.

CBRE says that property prices are not expected to rise this year and will even fall in some markets – particularly in areas which have a large supply of unsold homes.

The government is supporting the construction industry by unveiling 20 measures to boost house building and to encourage energy saving improvements to homes.

However, any attempts at encouraging new builds will only help fuel the oversupply of unsold homes and a bid to help landlords convert vacant offices into homes is proving unpopular since the conversion costs are too high.

Home Prices Slump As France Staggers Into Recession – iExpats.