About-turn keeps la belle vie alive

France has decided to drop plans for a special property tax to the delight of foreign buyers searching for holiday homes.

Purchases by Britons of second homes in Dordogne, south-western France fell by as much as half three years ago as the economic crisis hit the British hard. David Tomlinson / Lonely Planet

Some were lured by their love of the country, especially its language, culture and cuisine. Others found a quality of life that seemed to offer an idyllic escape from the stress of the rat race.
For decades, France has been a favoured destination for foreigners in search of holiday homes. And thanks to an extraordinary about-turn by Nicolas Sarkozy, the French president, they have just been spared an unpleasant financial shock.
Mr Sarkozy and his government initially ignored protests and gained parliamentary approval for a proposed new tax that would have forced an estimated 360,000 people to pay 20 per cent of the calculated rental value of their French properties.
The levy was expected to pass its final hurdle this week, a vote in the upper house or senate. It would have affected people of all nationalities owning residential properties in France and maintaining them for their own use.
French people resident in the UAE, and anywhere else outside France, would also have been caught in the trap. But foreigners were the main targets amid fears that Mr Sarkozy, struggling with poor opinion ratings leading up to next year's bid for a second presidential mandate, viewed the tax as a simple way of raising revenue with negligible electoral risk.
So what prompted him to have second thoughts? It seems expatriates must thank a group of nine senators from Mr Sarkozy's ruling UMP, who met the president and ministers at the weekend.
"The president told us he had been convinced the law was a bad idea and has taken a decision to scrap it," one of the senators, Joelle Garriaud-Maylam, told the British daily newspaperThe Telegraph. "British people help rejuvenate some of our countryside and have a very positive influence, and we should be grateful."
The decision will be a huge relief for the estate agents and would-be sellers who look to outsiders to fill gaps in the domestic market.
It is likely that Mr Sarkozy was influenced in part by the impact the tax would have had on the French property sector, especially in areas popular among expats.
France is only part of the international story of second-home ownership. People of all nationalities have followed their instincts and bought holiday homes in far-off parts, from Dubai to Dordogne, Florida to the Far East, Turkey to Tunisia. And the signs are that whatever fluctuations occur in such markets, buyers will not be deterred.
"We have become more cautious for obvious economic reasons," said Charles Purdy, a director of the Smart Currency Exchange in London. "But there is still a great level of demand from people wishing to live overseas and experience a different lifestyle."
A Smart Currency Exchange survey conducted in the first quarter of this year found that of those considering buying abroad, 25 per cent intended to retire or emigrate.
Cyprus was re-establishing itself as a popular location, and interest in Spain and Turkey was also high.
Mr Purdy said the impact of the credit crunch in Dubai meant his company noted little activity by British clients investing in property there as opposed to repatriating assets held there.
Conversely, online property outlets in the West continue to market apartments and beach duplexes in the UAE, suggesting that developers still see a valuable market in Europe.
Trends are cyclical. Three years ago, reports suggested that purchases by Britons in their beloved Dordogne, south-western France and elsewhere in the euro zone had fallen by as much as half as the economic crisis hit the British hard.
For people on fixed sterling incomes, from pensions or investments, the sharp decline in the pound's value against the euro was especially painful. As the currencies hovered near parity - despite some improvement, £1 still buys only €1.14 - everything from meals out and supermarket bills to the cost of work around the house became prohibitively expensive.
More recent reports indicated that the market had experienced something of a recovery, especially in countries such as Spain and Portugal, whose economies have suffered even more acutely.
And in some other sectors there is distinct buoyancy. Knight Frank, which deals in residential and commercial property in 49 countries, tracks prices in an index covering 15 cities in Europe, Asia and America.
In the year ending in March, it found the price of prime property in Paris had risen by 22.2 per cent "driven primarily by supply constraints and growing interest from overseas buyers". Moscow was the weakest market, with prices down by 8 per cent.
"A year ago there was a clear continental divide when it came to the performance of the world's prime property markets," Knight Frank says.
"Asian cities occupied the top rankings for price inflation, while Europe and the US trailed far behind. A year on and the global picture is less clear. The gap between the performance of Europe and Asia's top cities has narrowed as efforts by Asian governments to cool housing inflation have started to take effect and European prime housing markets come out of the downturn."
Back among the foreigners with second homes in France, the government's retreat on the second-home tax will result in discontent being replaced by modest celebration.
Connexion, an English-language newspaper read widely by expats, had been inundated with letters and e-mails from concerned homeowners who spend only part of the year in France but do not rent out their properties.
Francois Baroin, the French budget minister, had hoped the tax, to be introduced from January 1, would yield €176 million a year (Dh918.6m). The size of each owner's levy would have varied to reflect the location and size of the property, but some observers suggested a national average of €500 to €600.
Mr Baroin's ministry had argued that owners of second homes who were not legally resident in France benefited from local and national public services without contributing through taxation.
The threat of a significant new annual bill had raised questions about the extent to which people would be put off buying for the first time in France.
Some estate agents felt that the tax would prove the last straw for any existing owners already questioning la belle vie for which they had yearned.
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