Reported Property Prices — Still Up, But There’s Lots to Question About the Future!

Sales volumes remained high until February, according to the figures published by the Chambre de Notaires de Paris just yesterday. The following text is an edited translation of the report:

Unprecedented, the health crisis we are experiencing and the necessary confinement measures have shut down the entire real estate market since mid-March. However, at this stage the sales statistics relate to the months prior from December 2019 to February 2020. They therefore do not yet include the effects of the health crisis, which, incidentally, are extremely difficult to anticipate on the residential property market.

The major trends, which structured the real estate market before the health crisis, therefore continued in these latest figures. The level of activity and sales volumes have remained historically high, the market continuing to hold up better in the Grande Couronne area than in Paris and in the Petite Couronne area.

Rising prices also continued at a higher rate in the Capital and Petite Couronne. In detail, 38,800 sales of resale homes were recorded in Ile-de-France from December 2019 to February 2020; i.e. an almost stable level (-2%) compared to the same period a year ago, with a slightly more marked decline for houses (-4%) than for apartments (-1%). Apartment sales fell 9% in Paris, where constraints weighed on supply, but gained 8% in the Grande Couronne. During this period and before the shock of the state of health emergency, sales volumes were still up 7% compared to the average for the past 10 years.

The next sales statistics for the Notaries of Greater Paris, which will be published on May 28th in the first quarter of 2020, will include, at least for the last two weeks of March, the halt related to confinement measures. However, the crisis will only partially weigh on sales volumes for the quarter given the very high level of activity at the start of the year.

To be as close as possible to the market, some new and complementary indicators allow Grand Paris notaries to take the first steps. They compared week after week the transactions (sales and pre-sale contracts) actually signed in their real estate databases without adjusting for before and after the implementation of confinement measures. These “business” indicators must be analyzed with many precautions because they illustrate the blocking of the real estate chain (no visits, negotiations, then no meetings of the parties) but not necessarily a cyclical breakdown of the market.

These indicators confirm the brutal halt in real estate activity announced by all observers as early as the week of March 23rd. The confinement has since been extended. Over the past four weeks, and compared to what has been observed since the start of 2020, the volume of pre-sale contracts signed and received on average each week for Ile-de-France has fallen by 90%. For its part, the volume of final sales contracts held up a little better (it would later drop by around 80%), which is consistent since the sales incorporate many elements already present in the pre-sale contracts. It has been easier to complete a transaction that has already been mostly fulfilled. It is also hoped that the legal measures aimed at streamlining the activity (notarizing deeds electronically, for example) allow the final completion of files in progress.

The trends observed in prices before the health crisis continue for the moment at the same rates before the crisis. The last sale prices calculated in February 2020, and therefore before any impact of the health crisis, showed an annual increase in prices for resale housing of 4.9% in Ile-de-France. The increases remained stronger for apartments (+ 6.4%) than for houses (+ 1.5%). In Paris, the price per square meter reached €10,370 per square meter in February, an annual increase of 7.3%.

The price projections made on the pre-sale contracts for June 2020 include the signatures (very few, as mentioned above) made in the second half of March. But here again, no development is observable and the continuation of the trends observed in 2019 into June remains the rule. This is not surprising: a lag time generally precedes the diffusion of the statistics, which is neither systematic nor proportional, of changes in activity of the prices.

Maintaining the conversion rate from pre-sale contracts to sales will also be an indicator of the market’s resilience to the new economic, financial and societal order linked to the health crisis. In Paris, according to the pre-sale contracts, the price per square meter of sales could approach €10,700 per square meter in June 2020, an annual increase of 8%. We are also expecting a sharp price increase for apartments in the Petite Couronne (+ 6.7%). As previously announced, and after a very long phase of stagnating prices, the Grande Couronne would experience, at least at the moment, price increases of around 6%, fairly close to those at the heart of the assembled information.

The bottom line: from June 2019 to June 2020, the sale price of Ile-de-France homes should increase by 4%, according to advanced indicators on pre-sale contracts.

What some industry professionals have to say about the future of real estate in Paris and the region…

“The prospects for recovery are hypothetical and dependent on the outcome of the only priority fight at present: the fight against the virus.” Note de Conjoncture Immobilière n°47 des Notaires de France

Sébastien de Lafond, Meilleurs Agents Laurent Vimont, Century 21

“If the virus stutters, with intermittent confinement, the market will not regain its liquidity.” Sébastien de Lafond, President of Meilleurs Agents, quoted by Sophie Vion in her article in Les Echos of April 28, 2020

“Real Estate, what market out of confinement? You have to learn to say ‘I don’t know,’ as no one can predict what will happen after the Covid-19 crisis.” Laurent Vimont, president of Century 21 France (quoted by Jean-Bernard Litzler in Le Figaro Immobilier, April 8, 2020

“Over the past two weeks, both purchases and rental leases have increased by 42% over the past on our site.” Christine Fumagalli, president of the ORPI network (quoted by Anne-Sophie Vion in Les Echos, April 28, 2020)

“As of April 23, 2020, we estimate that the French economy is operating 35% below normal. On the commercial field alone, the loss is estimated at -41%, and even at -49% excluding rents, a component that is not very sensitive in the short term to changes in activity. Household consumption could be 33% lower than its normal.” INSEE business update

“The effect of eight weeks of confinement alone represents 120 billion euros of gross domestic product less in the economy (5 points of annual GDP). Nearly 60% of the decline in national income is absorbed by government (through the increase in the deficit). But 35% is on behalf of companies, which raises the question of rebound after the confinement. There is a great risk that a recessive spiral will then start: bankruptcy and reduced employment will lead to a reduction in household income that will fuel the reduction in activity.” OFCE, Policy brief of April 20, 2020

“For eight weeks of confinement, households would accumulate a forced savings of 55 billion euros.” OFCE, Policy brief of April 20, 2020

“Each two weeks of confinement costs us about 1.5% annual GDP loss, and almost as much in additional public deficit, taking into account the measures taken. Beyond the urgency and consensus of the present moment, we need to start thinking about the post-crisis with many open-ended questions. But, we know that the confidence of households and entrepreneurs will play a doubly key role: health confidence through a fairly safe but essential exit from confinement; confidence in our ability to leave sustainably. As in the post-war period, to which our post-crisis period will look a little like, and fortunately less dramatic, we will have to mobilize a mix of three levers: the return to growth, debt treatment, the proper use of monetary policy.” François de Villenay de Galhau, Governor of the Bank of France hearing before the Senate committee of April 15, 2020

Michel Mouillart, Professeur Economics Univ. of Paris

“As for individuals, some are already seeing their income significantly reduced by this crisis. Even for those whose financial situation will not be directly impacted, there are fears of a crisis of confidence fueled by fear of unemployment and the future, mechanically pushing back a project that engages them in the long term.” National Barometer of Real Estate Meilleurs Agents of April 2020

“Interest rates and access to credit dominates, given the abundance of liquidity that floods the market. A few voices, however, are raised to alert banks to the integration of a new risk premium to cover the increased risk of default buyers in the real estate market. The financing of French real estate markets should therefore, on the face of it, not have to suffer the consequences of the coronavirus crisis. Available liquidity is expected to remain plentiful and home loan rates should remain low.” Michel Mouillard, Professor of Economics at the University of Paris-West, My Sweet Immo, updated April 15, 2020

“There are two conflicting forces that are going to be exercised in this business: on the one hand, interest rates that will remain low cash flow and excess liquidity; on the other hand, a credit crunch and a strong recession will therefore drive away potential buyers. Very clever is the one who can know what will happen. One thing is certain: ‘stone’ will remain a first-rate investment as many will be scalded by the sharp decline in equity markets.” Philippe Salle, President of Foncia, interview of April 28, 2020, published by Olivier Marin on the website estate.lefigaro

Individual arbitrations in favour of investment Two discourses are opposed: housing is a safe haven compared to other assets (stock exchange, bonds) and for others constraints on the real estate market are increasing (rent control and tenant and AirBnB default less attractive) and may discourage.”

“The health crisis in Covid-19 is having an impact on tenant behavior,” according to a study by SeLoger in partnership with the Moral Real Estate Observatory (IMO)

“The economic impact has a definite impact on almost one in five tenants. In fact, 18% of respondents are afraid that they will not be able to pay their rent. The partial unemployment of 10.8 million employees inevitably reduced the incomes of many French households. But this concern seems even more palpable among homeowners who are even less confident that their tenants. In fact, 34% fear that in this time of crisis, the occupants of their homes will not be able to pay their rent.” Quoted by Boursorama with Newsgene on April 28, 2020 III

“Household confidence in real estate For the time being, initial surveys remain positive on buying intentions.

Séverine Amate, Seloger

”The market is on hold, but optimism remains high,” said Séverine Amate, a spokeswoman for the SeLoger Group. “Indeed, the survey conducted by SeLoger tells us that.”

“Seven out of 10 French people have no doubt that their real estate project will be carried out in the next six months and one Frenchman out of 2 will even tackle it at the end of the confinement! Finally, it is important to point out that only 13% of respondents plan to postpone the purchase or sale of their home until 2021. But will the intentions be realized and will they not encounter financial or psychological obstacles, related to deconfinement and has its anxiety-inducing side? For we will have to go out and leave what the sociologist Fanny Paris calls a ‘sociofuge,’ a place that, in uncertain times, allows to establish a temporary and reassuring normality,” as cited by Nicolas Santolaria, Diary of a Confined Parent, Week IV, “Deconfinment? No Thank You.” Le Monde, April 26

“After a month of confinement, some have revised their housing criteria. The capital and its small apartments are in free fall. From now on, it’s about the house, the greenery and the great outdoors!” www.journaldesfemmes.fr, Real estate: Fini Paris, the confined want to buy in the province with a garden, published April 25, 2020

Read the online version.

A bientôt,

Adrian Leeds
Adrian Leeds Group

 

 

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