Popping the Cork on French Real Estate

During confinement, the real estate market in France stood still…very still for two solid months. Visits to properties were impossible. The usual players in the industry were not in their offices processing transactions. Potential buyers perused the Internet while confined at home with less to do. Buyers speculated on how that would affect prices.

The moment deconfinement happened, all that pent-up energy bubbled to the surface and the cork has popped! Buyers knew what they wanted and were enthusiastic about moving forward with their lives, hence their real estate acquisitions…and about changing the kind of abodes in which they wanted to live. Properties with outdoor spaces are selling at a premium, and quickly. Apartments without balconies are left aside and priced softer.

For our North American clients, who are still largely confined to their homes and can’t travel to France without having a visa, it’s even more frustrating. The political climate in the U.S. leaning far right is encouraging a kind of “Escape from America” by the leftists and France is just one of their destinations. We are inundated with people wishing to make the move as soon as it’s possible.

The agencies are scrambling to keep up with the sales by all kinds of buyers. It’s been boom time, in spite of the summer vacation period as agencies remained open, agents continued to show and sell properties, all in the interest of making up for lost time. Our own clients have been more than willing to make purchases “sight unseen,” trusting us to make the choices for them. Because it takes months to close on a property, this gives them time to line up their future travel to France and their new home.

Properties in the midst of transactions during the confinement have experienced long delays, frustrating the buyers and sellers. The delays have been caused largely by the lenders, rather than by the Notaires or the Syndics. We are facilitating these delays as best as we can with the hopes that the industry will catch up soon and get back to a kind of normal schedule. Unfortunately, with so much uncertainty, I don’t see that happening in the immediate future.

The following is the recent report by the Chambre de Notaires de Paris reviewing price trends, past and what is to be expected based on the trends, but a bit unpredictable because of these unusual times. Here’s what they have to say:

In total in Ile-de-France, the sales volumes of resale housing for the second quarter of 2020 fell by 28 percent compared to the second quarter of 2019. But the quarter is the synthesis of very different periods: six weeks of total confinement and a collapse in sales, followed by an upturn in activity, which quickly returned to levels close to the start of the year!

As expected by the professionals, the extraordinary period that we experienced did not have an influence on prices in the second quarter, the rise of which continued, including in the Grand Couronne. The presale contracts signed from May to July 2020 confirm the high level of price increases, with a new profile: it became slower in Paris and stronger outside of the metropolis. Still according to the presale contracts, activity should remain behind compared to the exceptional year of 2019, but, it will still be quite strong, particularly for the housing market which seems to benefit from ann increase in attractiveness following the confinement.

Beyond these developments, the situation of the Ile-de-France real estate market, like that of the economy in general, remains uncertain. While the real estate market benefits from a stronger value-safe effect and still very attractive lending rates, it remains dependent on the economic situation.

The real estate market suffered a very large exogenous shock due to the health crisis and confinement. Confinement prevented visits. The beginning stages of acquisition projects and the realization of projects already underway were virtually prohibited because so many players in the real estate industry were totally or partially prevented from bringing the sales to fruition.

The activity then restarted fairly quickly. In detail, the month of April 2020, when confinement was in full swing, activity collapsed with the volumes of sales of resale homes falling by more than 70 percent. Then the recovery was quite strong, with sales volumes signed in May 2020 which were practically as high as a year earlier. Activity was then a little less sustained in June (-13 percent compared to the previous year), but it remained strong.

In the end of the second quarter of 2020, the volumes of sales of resale homes fell 28 percent compared to an excellent second quarter 2019 and 18 percent compared to the average for all the second quarters of the last 10 years.

During the first six months of 2020, sales of resale homes fell by nearly 20 percent compared to the first half of 2019. But in 12 months (from the third quarter of 2019 to the second quarter of 2020) more than 162,000 homes were again sold in Ile-de-France, down 6 percent compared to the same period a year earlier.

In the second quarter of 2020, the most dynamic sectors before the health crisis showed the best resistance. For example, in the inner suburbs, the decline was only 4 percent compared to the average for the second quarters of the last 10 years. Conversely, in the second quarter of 2020, the very tight market in the Capital, where there is a structural shortage of products and where a downward trend in activity has been observed for several years, experienced a 32 percent drop in its sales volumes compared to the second quarter of 2019, higher than the rest of the region.

The health crisis and the occasional drop in sales volumes have not changed the upward price dynamic. Moreover, it should be remembered that the correlation has shifted in time and that it is not systematic. The price increase strengthened in the second quarter of 2020, with an annual increase in apartments of 8 percent in Paris, 7.4 percent in the inner suburbs and now 5.3 percent in the inner suburbs after many years of stability for this geographic area. Houses, which for nearly five years have experienced more moderate price changes than apartments, have seen their prices increase by 5.4 percent in one year in the inner suburbs and by nearly 5.0 percent in the inner suburbs in the second quarter of 2020.

The leading indicators on the presale contracts of the Notaries of Greater Paris, mostly signed after confinement (from May to July 2020) anticipate an overall continuation, or even an accentuation of upward trends by October, with fairly new developments by segment of market and by geographic sector.

In Paris, the annual increase in prices slowed down a bit. We expect an annual increase of 6.6 percent, which would set the price per square meter at €10,860. However, the increase in prices is accentuated for apartments as for houses in the Petite Couronne, about 9 percent. Finally, the Grande Couronne is now experiencing increases close to or even greater than those of the Capital (6.1 percent for apartments and especially 7.6 percent for houses).

These shifts, if they are to be confirmed in the coming months, could be partly due to changes in demand, linked to the health crisis, the development of teleworking and new expectations vis-à-vis housing (desire to have greenery and space) with, as a result, an attractiveness of single-family housing and the suburbs…the Petite and Grande Couronnes.

The sales volumes for May and June 2020 and the presale contracts from May to July confirm a recovery in activity. It is therefore a favorable sign. But, will this reactivation of the market be sustainable and at what level will the market now establish itself after three years as sales volumes have stabilized at a very high level? It is still too early to know, as the forces influencing the market are opposing.

On the one hand, the economic situation and the expected difficulties in terms of employment and income will constrain households and naturally risk weighing on activity. The tightening of the conditions for granting loans can also exclude certain fragile buyers from acquisition. Finally, and given the very long-term commitment represented by a real estate acquisition, the current context and the uncertainties about the health situation may encourage some households to wait-and-see (postponement or cancellation of projects). Not to mention a possible strengthening of sanitary rules.

On the other hand, the levers of activity are still present. First, the role of housing as a safe haven has been widely confirmed and confinement has shown the importance of being well housed. Then, in Ile-de-France, major projects (transport in Greater Paris and the Olympic Games) carry within them dynamic regional development. Last but not least, mortgage rates, which are still very attractive, facilitate acquisitions.

We can therefore hope that these factors will prevail and prolong the recovery, even if it seems difficult to expect to regain the level of sales of previous years.

Read the entire report (in French) by clicking here.

To view all of the price charts for Ile-de-France, visit the Carte des prix de l’immobilier du Grand Paris/June 2020.

A bientôt,