Reporting on the Impact of Covid-19 on French Real Estate
Volume XVIII, Issue 18
The questions are endless about how real estate in France is being impacted by Covid-19, a virus that not only affects our health, but our economic well-being on every level as well. It’s still too early to know fully all the impacts of the pandemic, specifically on real estate. We’ve been in a kind of stupor during the first weeks of confinement, but now the government and the real estate professionals are preparing for the end of confinement — the “deconfinement,” scheduled for May 11th here in France.
New housing currently under construction is sure to experience lengthy delays as work has been disrupted. When confinement began on March 17th, it was tough to determine which sites could or should continue and which should halt. Any teleworking activities could continue, but on-site work has been severely disrupted and the delivery of materials uncertain. According to the Federation of Real Estate Developers, at the end of March, 95 percent of social housing projects were stopped. Debates continued among several federations and political figures who had asked the government to temporarily stop all construction sites in the interest of safety. It is impossible to measure the extent of that at this stage. This will contribute to the current housing shortage in Paris, already at a high tension.
The work of Le Projet du Grand Paris Express has been suspended. The Société du Grand Paris, the project’s owner, asked the companies to secure the construction sites in progress and to temporarily suspend their activity. The construction of the Olympic and Paralympic Village for the 2024 Olympic Games, located in the cities of Saint-Ouen, Saint-Denis and L’Île-Saint-Denis, has also been suspended. In Toulouse, the construction of the Téléo cable car is stopped.
The government wants the construction sites to resume as quickly as possible to limit the economic impact of the health crisis and has stepped-up actions in this direction. On April 2nd, a guide to good practice was published by the Professional Organization for the Prevention of Building and Public Works (OPPBTP). This tool for construction and public works companies describes the measures to be implemented to guarantee the safety and health of employees on construction sites. In theory, the sites can resume their work, however, many construction trade unions were opposed to the immediate return to work believing that the risk is still too great. On April 14, 2020, the OPPBTP published an update to the guide following initial feedback from the field.
On April 23rd, a large majority of construction companies still resorted to part-time working, however, faced with the need to react properly, initiatives were being implemented on a local basis. For example, a charter to restart housing projects has been signed by the Hauts-de-France Regional Housing Union and its partners and a recovery plan has been implemented in Auvergne-Rhône-Alpes.
In theory, despite confinement and sanitary measures, mayors can continue to issue building permits. However, very few have all the means to carry out safe procedures. Not all players are necessarily or readily available. Thus, the procedures are stopped because of the impossibility of coordinating all the teams involved in such major projects.
On March 25th, the government published an order to adapt the procedures to this very exceptional situation. Thus the proceedings in progress had to be suspended or extended. One month after the end of the health crisis, or at least lockdown, they could pick up where they left off. Building permit applications could resume one month after the end of the state of health emergency…which continues to be uncertain as the government assesses the confinement period.
The FFB (La Fédération Française du Bâtiment), the Fédération CINOV, Synamome, UNSFA (Union Nationale des Syndicats Français d’Architectes), the Union Nationale des Aménageurs, the UNGE (Union Nationale des Géomètres-Experts), the FPI de France (Fédération des Promoteurs Immobiliers de France), the Union Sociale Pour l’Habitat and Untec (l’untec) have expressed their concerns. This newly revised order will cause a shift in the workload for construction companies which will not be able to start their work until 2021.
On April 15th, Ordinance No. 2020-427 supplemented that of March 25th. The Ministère de la Cohésion des Territoires removed the one-month buffer period. According to them, “the provision makes it possible to avoid any risk of paralysis in the construction sector which could have constituted a significant obstacle to the recovery of the economy,” and they added that “building permits can be issued sooner and pre-emption rights will be purged more quickly.” This new order indicated that they will resume as they were with a minimum of seven days, not one month.
For people who are about to buy property, signing a pre-sale agreement or even a title deed elicits many questions. Real estate agencies are closed as well as are the notarial offices. However, most all are organized to respond by telephone, email or videoconference. Unfortunately, the ability to create electronic signatures is not widespread or fully operational, therefore the legal deadlines for certain files cannot be respected.
Maintaining real estate activity despite the crisis is one of the objectives of the Ministère de la Cohésion des Territoires. They had specified that the signing of an Acte de Vente (deed) was not one eligible to receive an exit waiver. After advising to postpone the signatures to later dates and to extend the validity of the deeds already signed, they worked on the rapid implementation new procedures.
On April 4th, an official decree was published in the Journal Officiel. It legalizes notarized deeds signed remotely. This is a departure from the current code that requires the physical or represented presence of the signatories. This measure applies to both resale and new real estate and does not change the authenticity of the signed deeds. Concretely, for a sale, the notary can now simultaneously collect the electronic signature of the seller and that of the buyer, while the new system is fully encrypted and secure. Note that this is a temporary exemption which will end one month after the end of the health emergency. (Or so they claim. I suspect, particularly with foreign buyers, they will find a way to implement this in cases where the buyer can’t be present.)
According to the Ministère de l’Intérieur, “moving is authorized until further notice but must be limited to strict needs.” However, most moving companies have suspended their activities (95 percent according to the Chambre Syndicale du Déménagement), and it is near to impossible to rent the tools they need. The Ministère de la Cohésion des Territoires also proposes to tenants and occupants to contact them to find an agreement and possibly extend their occupation with a temporary lease agreement. Based on the having a corrected agreement, this allows the tenant to stay in his home and the landlord to collect the rent.
Despite the health crisis hitting the country, rents are due to the owners. The government has not announced any deviations from the usual regulations. However, some tenants may find themselves in a fragile financial situation. For this, the Ministère de la Cohésion des Territoires strongly encourages individuals to find an amicable agreement with the landlord. An email exchange including the terms of the agreement is enough to make it official. In case of difficulty, the owners can contact the Agence Nationale Pour l’Information sur le Logement (ANIL).
On March 12th, French President Emmanuel Macron announced the two-month extension of the winter break period preventing evictions. This information has been confirmed by the Ministère de la Cohésion des Territoires and therefore, rental evictions are prohibited until May 31st of this year.
The confinement measures make it impossible to hold general meetings of co-owners. On March 18th, the office of Julien Denormandie, the Minister of the Ministère de la Cohésion des Territoires was interviewed by the Agence France-Presse. He announced measures that “the Syndics’ contracts that were ending should continue until they can hold a next general meeting.” The idea is to keep operating until decisions can be made between co-owners. The text of the economic emergency law confirms this information and provides another clarification: all general meetings normally held from March 10, 2020 will be postponed until December 31, 2020 at the latest. This information is reassuring and provides a legal framework to this exceptional situation. Note that only condominiums that have validated participation remotely at a previous general meeting can set-up such a virtual meeting. Fortunately, despite the confinement, maintenance and cleaning in the condominiums is maintained with all the necessary precautions.
Since the start of the coronavirus crisis, many solidarity initiatives have emerged. For example, it is possible to offer accommodations to associations that help the homeless. Another possibility, from Tuesday March 24th and following the request of Julien Denormandie, Airbnb has offered owners to rent their accommodations free of charge to front line staff “who would need it to get closer to their place of work.” In exchange, each host will receive compensation of €50 per booking. The PAP (Particulier à Particulier) site has also set up a similar service.
This period unfortunately causes financial uncertainty for borrowers. Employees with partial unemployment will receive 84 percent of their net salary, homeworkers 80 percent and employees on sick leave up to 90 percent. Other more precarious professions, such as the self-employed, could see even greater declines in income. How to repay a loan if the salary is not maintained at 100 percent? How to rearrange the monthly payments? Is it possible to carry over or delay monthly payments? As of April 7th, the banks have not taken any exceptional measures and the monthly payments remain due. However, most home loan contracts contain default clauses to answer these questions. Depending on the case and the contract, it is possible to install arrangements to avoid putting the borrower in a critical situation: postponement of loan repayment or reduction of monthly payments. However, it is advisable to pay attention to the different fees and penalties. A deferral of a loan repayment, even if it is free of charge, lengthens the duration of the loan and therefore may increase the interest paid.
In his speech of March 16th, Emmanuel Macon announced that he had decided to suspend the “ongoing reforms, starting with the pension reform.”
Here are the real estate reforms as we know them:Also called “real-time APL,” the reform of the calculation method of Housing Aid was expected on April 1, 2020. The announcement of its postponement was made at the start of the health crisis, but no delay timing was specified.On April 21, 2020, a decree published in the Journal Officiel indicated that the enforcement of the reforms will take place no later than January 1, 2021.
A major co-ownership reform was expected for June 2020. We are awaiting news.The Loi Lagleize, a third type of property rights to be created in France, authored by Jean-Luc Lagleize, deputy of the Mouvement Démocrate (MoDem), was to be studied by the Senate this spring. He clarified that the parliamentary agenda being upset, he has no precise information on the legislative calendar to come.
Long awaited by real estate professionals, the municipal elections were to signal the return of building permit authorizations. The postponement of the second round naturally suggests that building permits will still have to wait. During his speech on March 16th, Emmanuel Macron announced the postponement of the second round without however giving a specific date. Prime Minister Edouard Philippe, however, has suggested the date of June 21, 2020. The emergency laws to deal with the Covid-19 pandemic, enacted on March 23rd, provided a partial response. For municipalities whose mayor was not elected in the first round, the second round of municipal elections must take place no later than June 2020. The exact date must be fixed by decree no later than May 27th. Until then, the current mandates are extended. If these deadlines are not respected, the results of the first round will be canceled and the voters will be invited to revote the first round and then vote again in round two.
Notably 30,000 out of 35,000 municipalities elected their councils in the first round. Despite the confinement measures, new municipal councilors can meet behind closed doors and elect a mayor. Paris is not one of them.
Adrian Leeds Group
P.S. Après Midi will meet virtually on May 12, 2020! Due to the Coronavirus confinement, for the first time ever, we will host Après Midi LIVE from our homes on ZOOM!
Kathy Borrus is a freelance writer based in Washington, DC. She is the author of multiple books including Five Hundred Buildings of Paris, One Thousand Buildings of Paris, The Fearless Shopper, and Stubby, a children’s picture book. Her writing has appeared in The Washington Post, The Boston Globe, PurpleClover.com, Fits, Starts, and Matters of the Heart, Art Business News, and FranceGuide among others. Her most recently published book is Notre Dame de Paris: A Celebration of the Cathedral.
For this appearance at Après Midi, Kathy will talk informally about Notre Dame, how she came to write and research the book, and the stories that fascinated her about it.