Get In While You Can: Prices on the Rise and Getting Higher

Yes, Paris property prices have hit a record high, but mark my words, the record will continue to be broken and prices will rise even further.

The Local just published an article touting the “amazing news” — as if we are all shocked by it. We are not. If you are reading French Property Insider regularly, then you know we report on the Paris property market regularly and timely, based on the reports issued by the Chambre de Notaires. The statistics quoted in The Local or by Seloger also come from the Chambre de Notaire’s partnership with INSEE, known as the notary-INSEE index:

     “Price indexes for resale dwellings (with the Notary-INSEE label) are calculated quarterly by INSEE, and serve to enrich the statistical information available on the French housing market. These reference indices,     produced in partnership with the Notary authorities (Higher Council of Notaries and the Paris Chamber of Notaries), are calculated on the basis of net vendor transaction prices (excluding transfer fees, notary fees and agency fees) of sales completed in the quarter.”

So, when you’re reading that “Buying a property in Paris is more expensive than it’s ever been with house hunters now having to fork out a record €9,000 per square meter on average if they want to own a piece of the French capital, according to new figures,” readers beware. This is only a small part of the picture and the figures could fool you. The truth is, that the average price is much, much higher! And is sure to go much higher if the trends continue.

Why? For a number of factors, one must consider the reported figures with certain truths in mind:

1. The figures are reported based on the final sale. The negotiations for that sale took place AT LEAST three months prior to the sale — as long as when the pre-sale agreement was signed. Then, the report is issued about two months later, therefore the figures are already five months out of date.

2. The figures DO NOT include transfer fees, notary fees and agency fees. That’s a big difference. Property prices advertised INCLUDE agency commissions which are normally about five percent. So, now you can immediately add that five percent (of the gross, not the net) to the equation. If the average price was €9,000 per square meter, then it was advertised at about €9,500 per square meter including the commission.

3. Smart buyers will insist that the furnishings values be listed and deducted from the sale price to reduce the basis on which the notarial taxes and fees are assessed. So, let’s say the apartment has a fully equipped kitchen and you’re buying it that way. All of the appliances and cabinetry account for furnishings and can easily amount to €10,000 or way more. That comes off the top, too, further reducing the per square meter average that is reported…but of course, that’s not the price that is advertised or that will come out of your pocket.

4. Then, there’s the cash exchange between buyer and seller, that is absolutely illegal, but done. It’s a well known practice that the two make a deal on the side to avoid paying taxes — notarial taxes and fees for the buyer, as well as capital gains tax for the seller. No one knows how much that accounts for!

5. Let’s remember, too, that averaging takes place within each district and when considering the quality of the properties, further changing what you would expect to pay for a good property investment. If you want a property that has valuable assets, such as a great view, lots of light, an elevator, a guardian, etc., etc., then you will be at the top of the price range. All the others — that don’t have such desirable assets, drag down the average prices.

So, let’s review this. If the reported average in the city is €9,000 per square meter, and that’s already five months old with an average annual increase of at least eight percent, then today, that figure can be expected to be about €9,300 per square meter. Add five percent to that for the agency fees, and you get about €9,790 per square meter (remember the commission comes off the gross, not the net). And if you further add a small percentage for furnishings (let’s estimate five percent of the price), that gets you to well over €10,000 per square meter on the average. That’s more like it — and that’s the truth. The bottom line is to compare the reported prices to comparable properties on the market and use that as your true barometer.
 
The Local’s article points to the win of the 2024 Olympics bid that will further increase prices. I wholeheartedly agree. But other Olympic cities which have experienced this growth prior to the games saw decreases immediately after, too. The advice I’d give is to buy now and then sell in 2023 before the decline happens.

And yes, Paris “has become an exclusive city, reserved for high earners (management and liberal professions),” but haven’t just about all other international cities? According to CNN the ten most expensive (affordability) cities are Hong Kong, Sydney, Vancouver, Aukland, San Jose, Melbourne, Honolulu, Los Angeles, San Francisco, and Bournemouth & Dorset. No matter what report you look at (I looked at about a dozen), Paris has a long way to go before it hits the prices of such places as Monaco, Hong Kong or London. This means there’s room for growth.

I also agree with The Local’s article that “the election of Donald Trump, Britain’s decision to leave the EU and Emmanuel Macron’s election in France have apparently all played a role in boosting property prices in the French capital.” We know this first hand. The moment Mr. Trump was elected, our phones and inboxes saw a big boost in activity. Add Brexit to the mix and the British are doing the same…getting “the hell out of Dodge,” at least financially if not physically. Then M. Macron came along and welcomed the deserters. That added fuel to the property fire.

One last thing that is very, very important to remember: Paris is a finite market. Parts of it may go UP, but it can’t go OUT. Even if the city is successful in creating new-build high rises within the “périphérique,” and even if Madame le Maire Hidalgo thinks she can expand that circle to include some of the suburbs, there will never be a devaluation of the historic center of the city…never. The demand is high and the supply is low. We all know what that means as students of Economics 101…higher prices.
 
Other cities in France are following suit. Paris isn’t the only investment haven in France, but get out your hard-earned bucks sitting in investment accounts that are volatile and put them into a real asset you can count on…NOW.

The moral of the story: Waiting will cost you a lot of money and you’ll be kicking yourself later that you didn’t act faster.

A bientôt,

Adrian Leeds
Adrian Leeds Group

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P.P.S. I’ll be in New York for Thanksgiving this year and as is usual every year, there will be no French Property Insider on Thanksgiving Day. Still, there are 50 issues a year!