French Property Market Predictions for 2021
Volume XIX, Issue 21
The following report is a translation from a recent report provided by the Chambre de Notaires de France:
The year 2020 was an unprecedented year in French real estate. The results for the 4th quarter have confirmed what the Chambre de Notaires said in December 2020, when they were already announcing a resilient real estate market, thanks in particular to healthy and solid parameters whose nature does not seem to be suffering from the effects of the health crisis. In terms of the volume of sales, an upward recovery has been observed since September 2020, totaling 1,024,000 transactions as of December 31, 2020, limiting the decline in volumes to 4 percent year-to-year. What might appear to be a poor performance must obviously be put into perspective in view of the period of near disruption of the market during the 1st confinement in spring 2020.
This first assessment is in line with the previous forecasts of the notaires who had, for a long time, announced an accumulation of transactions very close to one million for the year 2020. The appetite of buyers for the real estate market has remained strong, although its dynamics have been redirected in a somewhat different way. The usual market parameters remain attractive and the appetite for real estate remains, reinforced by a high level of savings. However, a new development for 2020 is that the direction of volume of sales is heterogeneous: the number of resale home sales has fallen by 12 percent in the Île-de-France region, which no longer appears to be the market’s driving force, whereas the provinces have pulled the market along.
This notable disparity has had an impact on prices. While they still show a clear increase over one year for Île-de-France, with +6.4 percent between 4th Quarter 2019 and 4th Quarter 2020, homogeneity is not, however, the order of the day. For example, in central Paris (districts 1 to 20), prices paused in the third quarter of 2020, and the slowdown seems to be confirmed according to the leading indicator of pre-sale contracts: the price of resale apartments should therefore begin a downward movement, from €10,850/m² in November 2020 to €10,600/m² in April 2021. A soft landing for prices also seems to be in the offing in the coming months in the Petite and Grande Couronne areas: it can be seen graphically in the form of a plateau that marks the stabilization or expected slight erosion of prices.
On the other hand, in the provinces, the trend remains essentially upward: almost all departments are showing an increase in median prices, a trend that is also generalizing for houses. The situation is identical in most of the largest provincial cities, where apartment prices are not decreasing, as well as in the major urban areas, where median prices for single-family homes are continuing to rise. The agglomerations of Montpellier, Marseille-Aix-en-Provence and Pau increased by 9 percent, 7 percent and 6 percent, respectively, in the fourth quarter of 2020, after slight decreases observed one quarter earlier. Saint-Étienne, the red lantern of the ranking, even jumped by 14 percent in the last quarter of 2020. As in Île-de-France, the indicators for pre-contracts in the provinces seem to show a clear slowdown in the annual increase in apartment prices (+3.2 percent at the end of May 2021, compared with +6.3 percent in the fourth quarter of 2020). The annual increase in house prices is expected to remain dynamic, to the detriment of the usual winter seasonality (+6.3 percent at the end of May 2021, compared to +6.5 percent in Q4 2020). Here again, however, heterogeneity is emerging throughout the country. Apartment prices are expected to fall sharply in Bordeaux (-5 percent expected at the end of May 2021), while the increase is expected to decelerate sharply in Rennes, where it is expected to remain steady in other cities such as Nantes, Montpellier, Caen, Rouen, Grenoble and Toulouse. In houses, prices are expected to slow sharply in the urban areas of Lyon and Le Havre.
It is clear that the cards are getting blurred! And that real estate behaviors, all parameters being equal, have evolved and continue to evolve as a result of the effects of the health crisis, but also, certainly and more simply, of those of the market itself. We can assume that the desire for greenery and space justifies the displacement of Ile-de-France residents to neighboring departments. The notion of secondary residences now seems to intermingle pure vacationing with the idea of a second principal residence. We can also assume that the price of certain large cities imposes a desire to go elsewhere, for lack of a sufficient budget. The solvency-enhancing effect of low interest rates on real estate loans is also reaching its limit: rates seem to have reached their lowest point. This could mean that they will no longer contribute to bringing new potential buyers into the market. Those who have been able to access property through very low interest rates have already entered the market for the most part, driven by the natural appetite for property acquisition. The others will remain excluded until prices adjust.
Consequently, the situation in Paris is no longer necessarily an isolated case. The pressure of prices in other urban areas could also push their inhabitants outwards, encouraged by a desire for green space that has been increased tenfold by the health crisis. Telecommuting has become widespread, strongly encouraged by the public authorities, that makes living outside of the cities more possible. The example of the situation in Lyon, which seems to be more affected by a price effects rather than by the health crisis as regards to a loss of its buyers, supports this scenario. In an overall upward context, the geographical reorientation, the consequence of a decision-making process accelerated by the effects of the health crisis, could contribute to a reorientation of prices in the major cities that have become less and less affordable after years of successive increases. In addition, some will rediscover the quality of life in certain medium-sized cities and their downtowns, generating a significant catch-up effect in their prices. For example, Angers, which has not seen an increase in apartment prices of less than 20 percent since the first quarter of 2020, or Caen, which has seen an 11 percent increase in its apartment prices over 2020, a trend that seems to be confirmed in the first half of 2021.
Three key indicators have turned red in the new housing market over the past twelve months:
* 377,600 homes were authorized for construction, 16.3% less than in the previous twelve months.
* Over the same period, housing starts have fallen by 11.3%: that is, in very real terms, 44,000 fewer homes.
* New home sales are collapsing, with 26,605 reservations in 4th Quarter 2020, nearly a quarter less than in 4th Quarter 2019. Over the year 2020, 31,500 fewer homes will have been reserved than in 2019, or -24.1%.
* Even as the French’s strong taste for real estate is confirmed, it seems necessary to support it with a vigorous public policy of construction assistance.
Read the entire report (in French) by downloading the PDF here.
The Adrian Leeds Group®
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