French Home Prices Stall Under Tax Pressure

That's a government that knows how to shoot itself in the foot

Paris home prices, which have risen 37 percent since 2009, are set to end their upward streak as French President Francois Hollande cuts property subsidies and raises taxes.

Government support for the housing industry ranges from lodging subsidies for students to tax breaks for renovation works and public construction, which totalled 45 billion euros ($59 billion) in 2011, or 2.25 percent of gross domestic product. Hollande is withdrawing some of that help as Europe's second-largest economy is on the brink of a third recession in four years, hurting property investors such as Bouygues SA (EN) (EN).

"It's probably the trigger for a price decline which could reach 30 percent to 40 percent in five to 10 years," Pierre Sabatier, chairman of PrimeView, a Paris-based company offering research in areas such as real estate, financial markets and demographic development, said in an interview. On top of government's budget cuts, the market will suffer because of an aging population and stricter mortgage rules, he said.