Paris from Different Perspectives

There are so many conflicting reports about the French property market that I don’t know who to believe. The numbers are the same, but the points of view seem to be from different perspectives.

One headline reads: “French Real Estate Struggles Amidst Economic Difficulty,” but then read the article: It reports increases in home prices for 2011 (according to the INSEE) to the tune of 1.8% (actually 4.3%, but 1.8% when adjusted for inflation), but ‘warns’ of decreases in the near future as much as 6% (as forecasted by Crédit Agricole). It further indicates that while Paris is still performing well (up 14.8% in 2011), the rest of the market is struggling and cites that values and rental yields are refusing to perform.

In another report by Savills Research, Paris is reported as becoming the most expensive rental market, even higher than London, with rental price growth outpacing capital price growth. A journalist called to ask me about this and I was dumbfounded.

“Au contraire!,” I exclaimed.

Let’s say you own a one-bedroom 35 square-meter apartment in Paris’ central district that cost 450,000€. The mortgage of 80% loan-to-value is 360,000€ that you borrow at today’s rate of 3.5% over a 20 year period. Your monthly payment would be 2,088€.

Average long-term rental rates as reported by Particulier à Particulier indicate that there would be no way to cover your mortgage! Have a look at the average rents:

District    Meter/Month Rent     35 m2
    1                 € 34.63              € 1,212.05
    2                 € 33.03              € 1,156.05
    3                 € 33.49              € 1,172.15
    4                 € 35.08              € 1,227.80
    5                 € 34.88              € 1,220.80
    6                 € 37.45              € 1,310.75
    7                 € 37.02              € 1,295.70
    8                 € 36.62              € 1,281.70
    9                 € 32.50              € 1,137.50
  10                 € 29.64              € 1,037.40
  11                 € 30.60              € 1,071.00
  12                 € 28.02              € 980.70
  13                 € 28.24              € 988.40
  14                 € 29.42              € 1,029.70
  15                 € 32.70              € 1,144.50
  16                 € 37.09              € 1,298.15
  17                 € 33.62              € 1,176.70
  18                 € 29.30              € 1,025.50
  19                 € 25.43              € 890.05
  20                 € 26.05              € 911.75
        
Average         € 32.24              € 1,128.42 (Average Rental Spreadsheet)

Compare these rents with New York City. According to the February 2012 Manhattan Rental Market Report™, a one-bedroom apartment is most expensive in Tribeca at $4,680 (3,600€) per month compared to Harlem where it’s least expensive at $1,391 (1,070€) per month. Paris prices compare to Harlem!?

Now, let’s look at short-term rental of one week. If you’re fortunate enough to own an apartment in central Paris where short term rental apartments flourish, then it would play out quite a bit differently. A one-bedroom apartment that sleeps up to four (two in the bedroom and two on the sofa bed), based on our own experience, would rent for approximately 150€ average per night with an occupancy rate of 65%. In this scenario, the rental yield is 2,966€ — 2.6 times more and easily covers the mortgage. In addition, you have personal usage time.

So, how do you know what and who to believe about the real estate market?

Personally, I don’t believe that property prices will tumble — at least not in Paris. When the capital gains tax law changed (February 1, 2012), sellers removed their properties from the market and prices went up to compensate for the tax payment. Meanwhile, lenders rates have come down. All this leads to even higher demands and with a lower inventory we are sure to see higher prices. And that’s exactly what we are seeing. Take it from us who are on the ground and scouting out properties every day.

If you’re waiting for the bubble to burst before buying, you may be waiting an awfully long time and missing your opportunity. And if you’re wondering if you should be taking an apartment in New York instead of Paris because you read somewhere the rents in Paris were exorbitant, look again.

Paris is a bargain and my guess is that Paris will always be Paris.

A bientôt,

Adrian Leeds
Editor, French Property Insider

Email: [email protected]

P.S. Monday afternoon Doni Belau of Girls Guide to Paris interviewed me on Overseas Radio about my life in Paris and the French property market. To listen to the show, visit Girls Guide to Paris.

P.P.S. I’m going to Normandy this weekend — perfect timing! Be sure to watch French Property Consultation and me on House Hunters International today, Thursday: “Historic Country Homes in Normandy” 7 p.m. EST/PST.