The election of President Macron changes ground rules for International property buyers in France.
After Brexit and Trump, we think that the Macron victory signals a changing context for politics. The victory will have some very specific effects on both the French property market and the French mortgage market.
Though the consequences are direct, they are not immediately obvious and to some extent they are counterintuitive.
The Context
The context of the victory is all important, because it marks a generational change of political leadership and a paradigm shift of political policy.
Political Leadership
Certainly Trump (70) and May (60) could hardly be described as “Young Turks“, and we think that they represent the end of a dying era. The new era will belong to a new generation of politicians who, like Emanuel Macron (39) and Nicola Sturgeon (46), will come to power with very different ideas of political policy.
The new generation will not view politics as a continuation of the Left versus Right dichotomy that has dominated politics since approximately 1900. For the new generation, the Left versus Right dichotomy is no more relevant to today’s politics than the 16 Century belief in the Divine Right of Kings or, Islamic State notwithstanding, the Church versus Secular State debate.
Political Policy
Looking in detail at the political policy drivers of Brexit, Trump, France and Scotland produces some key insights.
At the top, simplistic, level the political landscape, described as the Populist Revolution, is claimed have fractured into two groups:
- A numerically small group of the well-educated and well-off who have benefited from Globalisation.
- The numerically large group of poorly educated and poorly off who have been left behind by Globalisation and who have had enough.
As the current proposition runs, the political centre ground has moved to the right as Trump, May/Farage and Le Pen have seized the agenda of the Left Behinds. The suggestion is that they are placed to dominate the political agenda for the foreseeable future.
We take a different view.
We believe that the Left Behinds do not represent a monolithic mass of the poor and ill-educated. We believe that the Left Behinds consist of two very different groups and that the generational change of political leadership has understood this.
In our analysis, there are actually three groups in today’s political landscape:
- A numerically small group of the well-educated and well-off who have benefited from Globalisation.
- The numerically large group of old, poorly educated and poorly off who have been left behind by Globalisation and who have had enough. We see these as the Trump, May/Farage and Le Pen supporters.
- A numerically large group of young and well-educated but poorly off who have been left behind by the old guard politicians and who have had enough. We see these as the Macron and Sturgeon supporters. Crucially this group are growing just as the previous group die off.
An interesting glimpse into how this change may be progressing is to compare the results of the poll by the Scotish social media site Kilter on Scottish Independence with the 2014 Scottish referendum result.
We suspect that the generational transition will consign the old Left / Right dichotomy to history as the older cohort of voters are inevitably and inexorably replaced by the younger.
President Macron Changes Ground Rules for International Property Buyers in France
Surprisingly, we think that on the macro scale change may be relatively small, with most relevant policies continuing as before. Clearly there may be Significant Implications For Buyers Domiciled In The United Kingdom but this is because the UK will move from an insider within an EU of 28 to an outsider within an EU of 27.
However, we do see a possibility that two very specific effects will occur and that these effects will be especially significant to International Buyers in France.
Implications for French Property
The change that we expect will be an increasingly significant change specifically affecting the type of property typically purchased by International buyers.
By and large, International buyers tend to gravitate to the areas and types of property that are not sought after by domestic French buyers. French domestic buyers have historically preferred to move to areas where there are jobs and services not to picturesque areas. That’s why there has been such a strong supply of International Buyer friendly properties on the market.
We think that the Macron presidency will place considerable emphasis on our third group (educated, young, excluded) of the political landscape. (NB Macron previously held the Digital Economy portfolio as Economics Minister and is a passionate believer in Tech Start-ups.) This will lead to an increasing dichotomization of the property sector in which International buyers are active as the Arte video on Épicerie Café Chez Jeanne in Saint-Martin-de-la-Cluze explains. To find out more, the project is featured on La Liberation and they have their own Facebook page.
The splitting factor for this dichotomy will be the nature of the local political movers and shakers.
If the local politicians belong to the Trump, May/Farage and Le Pen group, our expectation is that local property will continue to fall in price, the local economy will worsen and depopulation will continue. Property in these areas will be cheap, picturesque, but a very poor investment.
If the local politicians belong to the Macron and Sturgeon group, our expectation is that these local areas will be positively and sustainably transformed beyond recognition. Young and dynamic people will begin to move back to obtain a better quality of life. They will bring with them the 21st Century post-industrial economy. These locations may also become a magnet for young educated entrepreneurs from outside France seeking escape from the dead hand of the Trump and May/Farage culture. The desirability of these locations, with their quality of life and improving local economy, will lead to a significant increase in price levels and they will prove to be an excellent investment. (NB We also see a strong similarity with the latest developments in Scotland.)
The essence of making the right property choice may well be a buyer’s ability to correctly profile the local political players.
Implications for French Mortgages
For French mortgages, we do not see an immediate change, but our medium-term expectation is as nuanced as or expectation for French property.
We expect that the Macron presidency will bring an improvement to the French economy through increased dynamism without a pursuit of the impoverishment of the 95% as has been the result of overly free market economics. This is likely to be shared across many of the EU 27 countries and lead to lead to more normal interest rates and lending rates. We therefore expect mortgage borrowing to become easier for those who meet the lending bank’s criteria. This will be a return towards normality from the extreme austerity of the Washington Consensus economic policy.
However, there will be an increasingly important sector of the property market for which conventional mortgage funding will still be difficult if not impossible to obtain. This is the domain of Home and Business Mortgages and Business Mortgages.
If our economic and political expectations prove to be substantially correct this will create a situation where there will be demand from younger and educated buyers for finance to enable them to move into the newly regenerating areas. However, the lending banks will continue to believe that this profile of lending will be too risky.
We see the solution to this coming from an unexpected direction, the Rent to Buy contract similar to that used in the Italian market since 2014.
The Rent to Buy option is particularly suited to transactions where the vendor wishes to retire and convert the property value into an income, but the buyer is not able to raise sufficient finance.
If you would like to consider Rent to Buy as a financing option please review our Financial Consulting website for details of our Rent to Buy services.