French property prices fell for a fifth straight quarter at the end of 2012, data showed on Thursday, and look set to keep on falling over the next two years as a weak economy and rising unemployment depress demand.
Housing prices fell 0.3 percent in the final three months of 2012 from the previous quarter, the INSEE national statistics agency said on Thursday. Compared with a year earlier, prices dropped 1.7 percent, the fastest decline since the fourth quarter of 2009 in the wake of the global financial crisis.
With the market looking increasingly shaky, buyers and sellers held back from going through with deals in the fourth quarter of last year and the number of transactions plunged nearly 12 percent from a year earlier.
Property prices in Paris, which has long outperformed the rest of France due to strong foreign investor interest and a shortage of housing to meet growing demand, were largely stable in the fourth quarter.
Prices in the capital have surged 95 percent in the past decade, while property prices across France have risen 71 percent, according to Thomson Reuters Datastream.
After a short-lived slump during the financial crisis, French property prices quickly rebounded but began falling again in late 2011 and the downturn looks set to continue.
Standard and Poor's and Morgan Stanley both forecast prices will fall 5 percent this year and again next year, while UBS sees prices dropping as much as 10 percent in total with most of the slide coming this year.
A lack of suitable housing in key markets had long underpinned the rise in house prices. However, a faltering French economy, which contracted in the fourth quarter and could be heading into recession, and unemployment of above 10 percent, are increasingly holding back would-be home buyers despite record low mortgage rates.
In the face of weak demand, construction activity is collapsing and housing starts dropped more than 28 percent in the last quarter of 2012 from the same period of 2011, according to housing ministry figures.
Hoping to remedy low housing supply, President Francois Hollande has set a target for 500,000 new homes to be built each year during his five-year term which ends in 2017.
Hollande's government has lifted the limit on hugely popular tax-free saving accounts, whose funds are channelled by banks into state-backed CDC bank and then used to finance social housing. The government is also looking at tax incentives to get life insurers to steer more money into housing investments.
(Editing by Susan Fenton)