FAYCAL Fouad, a real-estate agent at Century 21 Chaumont in Paris, has admitted that the global credit shortage has finally wound its way to his doorstep.

"Clients are seeing loan applications refused by banks," Fouad, who sells apartments in the 19th arrondissement, the French capital's least-expensive district, told Bloomberg News. "I've never seen that before. There's difficulty obtaining credit.''

Paris has avoided price declines that hammered property markets in capitals such as London, which had a 9.4-percent drop this year, thanks to fewer available apartments and demand for pieds-a-terre, lodgings used only for part of the time.

Buyers of apartments that go for as much as 11,010 euros (US15,000) a square meter, ranged from French teachers and doctors to actor Johnny Depp and American singer Lenny Kravitz.

Rates bite

Now, tougher lending criteria and higher interest rates may start eating into the city's property prices, economists say. While the national statistics institute Insee on October 7 said prices rose 2.4 percent in the second quarter, a shrinking number of transactions would throw the market into reverse, said Bruno Cavalier, an economist at Oddo & Cie in Paris.

"Prices will decline in the third or fourth quarter," said Cavalier. "Demand might still be there, but the solvency of households has diminished and banks are making fewer new loans."

Growth in property loans slowed at the end of the second quarter to 8.9 percent from 11 percent a year ago, according to the Paris-based French Banking Federation. For the third quarter, more than half of the banks in a survey by the central bank, Banque de France, said they would tighten lending criteria.

"In 2007, asking for a loan was just a formality," said Christophe Cremer, CEO of Meilleurtaux, an online lending company based on the outskirts of Paris. "Fifteen percent of buyers who would have gotten a loan then, are refused today. That's contributing to the slowdown."

A steady rise in prices in Paris helped chalk up average annual gains of about 12 percent in the past five years.