News Column

Rich Flee Paris for Tax Havens

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Agents say rare properties are being listed for sale almost weekly, creating buying opportunities for foreigners.

The tax changes slated for the 2013 budget by President Francois Hollande's Socialist government are having an effect on the Paris luxury property market before they have even passed into law.

Quite a few of France's most wealthy already have moved abroad to avoid the country's stiff inheritance and wealth taxes. Now, real estate agents say, the younger, working wealthy also are on the move, unhappy at the prospect of a 75 percent tax on income of more than EUR 1 million, or $1.28 million, and a capital gains tax of over 60 percent on stocks, bonds and company sales, although protests have produced exceptions for investors and new business start ups.

"In the last eight months since the measures were revealed, over 400 new residences, each worth above EUR 1 million, have come on the market as French entrepreneurs and investors leave France," said Charles-Marie Gottras, president of Daniel Feau, a high-end French real estate broker.

"We are seeing the kind of luxurious, high-quality properties that one used to see once a year or every six months now arrive on the market every week," he said.

The increased selection has altered the dynamics in a market that has long been characterized by high demand but little supply. Buyers now know they can negotiate, Mr. Gottras said, adding: "Prices have stabilized and even gone down a little." Some agents say there has been a 3 to 5 percent decline in top-end values.

As Alexander Kraft, chairman and chief executive of Sotheby's International Realty France, pointed out, "The fiscal changes are geared toward the seriously wealthy. The increase in numbers of residences for sale is not that significant, about 10 percent up, but in value it is very big. We are talking about exceptional properties starting at EUR 10 million to more than 20 to EUR 25 million."

"To give you an example, in the past six weeks alone, we have sold three properties for EUR 20 million each," Mr. Kraft said. "Even we don't usually sell those in a matter of weeks."

Some of these trophy holdings normally would not even appear on the open market, he said: "They would instead be carefully sold to friends or family members."

In the Sotheby's portfolio, a Haussmann-style, 19th-century mansion in the 16th arrondissement reflects the kind of rarefied home now on the market. "The 1,000-square-meter living space has been completely restored in exquisite taste with beautiful detailing. It's a real family home, cozy and comfortable, not a cold show property," Mr. Kraft said of the 10,760-square-foot home and its private garden. "The owner, a French industrialist, doesn't need to stay in France at this point in his life. The price, around EUR 20 million, is elevated, but it is such a rare find, I think it will sell."

Marie-Helene Lundgreen, director of Belles Demeures de France, an affiliate of Christie's International Real Estate and the international department of Daniel Feau, said the changes had created buying opportunities. "For those looking for very beautiful, important properties, this is the occasion to buy," she said.

Residences now on her books in the EUR 10 million to EUR 15 million range include a 330-square-meter, four-bedroom apartment between the courtyard and garden of an 18th-century Faubourg Saint- Germain mansion whose owners are leaving for Brussels, long a popular refuge for French tax exiles. There is also a 600-square- meter home near the Luxembourg Gardens. And a contemporary 250- square-meter penthouse near the Arc de Triomphe, whose owner is moving to London, is listed at almost EUR 5 million.

The effects have rippled down to smaller agencies like Vingt Paris, which has a French and foreign clientele. "It's been beneficial for foreigners," said Susie Hollands, the agency's founder and chief executive. "We were having problems finding enough good properties last year. People wouldn't put them on sale."

Among her six new listings, she said, "a super one came in this morning. It is an exquisite 150-square-meter home -- rare in Paris - - on a small, leafy Right Bank street for EUR 3.15 million."

Sales within the luxury category vary. "There are basically two speeds," Mr. Kraft said. "The French upper middle class is very hesitant. They are negotiating very hard and taking a lot of time to make a decision. So prices are softening for normal luxury properties, such as a two- or three-bedroom Parisian apartment at just under EUR 1 million to EUR 2.5 million. And they will probably fall by another 10 to 15 percent over the coming months."

It is a different story, he said, for the rare properties ranging from EUR 3 million to as much as EUR 50 million. "For a unique property defining all the must-haves -- it's renovated, in the right location, with interiors by a well-known designer, perhaps, and with a nice provenance -- then, you can still get top dollar," he said. "And it's not only in overall prices, but prices per square meter. We've done transactions at EUR 25,000 per square meter."

Who is buying? Agents said that for properties of more than EUR 5 million, the sector is dominated by a rich foreign clientele. "It's never been more diverse," Mr. Kraft said. "We're seeing the return of Americans due to favorable exchange rates, and of South Americans, especially Brazilians, who are investing the gains of their booming economy in France.

"Swiss, Germans and Scandinavians are buying in the 3, 4, EUR 5 million bracket; Russians have been a major force on the French market for 10 years and remain one of the top buyers on the high end, from 5 to EUR 100 million -- the latter in the South of France.

"For 20 to EUR 50 million properties, we've been seeing more and more Chinese buyers, the most wealthy appearing two or three years ago. Over the past 12 months, they have been a force. Of all buyers, 9 percent are Chinese."

Mr. Gottras and Ms. Lundgreen said some prospective buyers were from the oil-rich Gulf states. Mr. Gottras added, "We have some French buyers who do not want to miss the opportunities, and others who are reorienting their portfolios into real estate as a protection against the volatile stock market."

While most foreign purchasers are looking for a gilded pied-a- terre in one of the world's most beautiful cities -- Paris is Paris, after all -- they are also attracted by the stability and competitiveness of a long-term investment in Paris where prices are reasonable in comparison to international capitals like Hong Kong, New York and London, agents said.

A small number of French clients at the real estate agency Menager-Hug has decided to pull in their belts and stay put. "One couple, for example, are downsizing, selling their 600-square-meter apartment and looking for a 300 square meter to buy," Nicolas Hug said.

Eric Vincent, of Emile Garcin Paris, said: "Many of the people who are suddenly putting these projects into execution are selling them with a heavy heart."

"It's not a property meltdown," he added, "it is a fiscal crisis of confidence."

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