Property boom leaves Parisians priced out of the market

A boom in Parisian property prices ­ which have doubled in the past seven years and show no signs of slowing ­ has raised fears that a home in the capital may soon be out of reach for average French families.

The Bank of France has also warned that a surge in house values right across France ­ partly fuelled by British and other foreign buyers ­ could produce a "speculative bubble" and a crash in the property market similar to the early 1990s.

But economists, banks and estate agents say there is no sign of a slowing of the demand for French property ­ especially for apartments in Paris.

Although real estate prices in Paris are still below the astronomical levels of London, New York and Dublin, they are being pushed rapidly up by low interest rates available to domestic buyers and a wave of speculative buying.

One in five sales of apartments in the wealthier parts of Paris goes to a foreign buyer.

A report by the notaires, or officially-appointed, specialist property lawyers, in the Paris area said apartments in the French capital were already out of reach for first-time buyers with average or even relatively good incomes. As the price of large apartments in the most sought-after areas shoots through the roof ­ reaching almost ¤4m (£2.8m) for trophy apartments in some recent transactions ­ middle-class families are shifting into the traditionally poorer areas and poorer families are being pushed out into the suburbs.

The "social mix" of Paris ­ already much diluted in recent years ­ is being further reduced, despite the efforts of the Socialist mayor, Bertrand Delanoe, to reverse the trend. Higher property prices are also pushing up rents and reducing the number of apartments to let, as investment companies buy up whole blocks, or even streets, for rapid resale.

The US investment fund, Westbrook, recently spent ¤1,200m on 4,000 apartments belonging to two French property firms in the posher areas of the eighth, 16th and 17th arrondissements in west Paris.

Tenants complain that their new, anonymous foreign landlords are trying to push up their rents or force them out. The municipal council in the third arrondissement recently called for a law to protect tenants from "speculative real estate operations".

But economists specialising in the property market say that the rapid rise in prices in Paris ­ and France as a whole ­ in recent years cannot be explained by an influx of foreign money alone. French buyers are also taking advantage of rock-bottom interest rates and an easing of mortgage terms to move from the rental market into property ownership for the first time.

In Paris, residential prices are rising by 13 per cent a year. The steepest increases are in the once down-market 10th, 11th and 18th arrondissements in eastern and northern Paris (18.2 per cent, 15.5 per cent and 15.1 per cent) as well-off families leave rented property in the posher areas to the west.

The average price of a 100 square metre flat in Paris is now ¤400,000 (£280,000). In the most expensive parts of the city ­ the sixth and seventh arrondissements on the Left Bank ­ an average 100 square metre flat costs over ¤650,000.

The property boom is nation-wide. The national federation of estate agents estimates that prices across the country have gone up by 87 per cent in the past six years. The Bank of France warned recently that incomes were not keeping pace with house prices and that there were "large risks" of a property "bubble".