The Financial Planets have Aligned

John Rule, our Mortgage Manager and Listing Agent, is one of our best financial analysts and has been helping our clients for years to obtain financing. This week, he wrote the following article for French Property Insider:

“The Financial Planets Have Aligned to Create An Excellent Buying Opportunity for US Investors in Parisian Real Estate”

    Mortgage rates at an all-time low
+     Very strong US dollar
+     Rare pullback in Paris property prices
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=     UNIQUE OPPORTUNITY

The three most important factors that determine the cost to an American buyer of owning a Paris apartment all flashing green at the same time is a rare occurrence indeed, but that is exactly what we are seeing at this moment! The result is that apartment prices in US dollars are currently 25% lower, and monthly mortgage payments are 36% lower today than they were just 3 years ago.

1) Mortgage Interest Rates

The European economy continues to flirt with recession, having never really recovered from the financial crisis that began seven years ago. The European central bank has had no choice but to maintain its low interest rate policy. As a result, the 3-month Euribor rate, upon which most variable rate mortgages are based, is now effectively ZERO. This does not mean that one can borrow at 0% though, as there is a bank margin of as much as 2% to add to it.

However, we do not see bank margins changing much and so for those favoring a variable rate loan, rates cannot get any more attractive than they are now.

Three Month Euribor

Because variable rate loans have nowhere to go but up, we currently favor fixed rate loans. They are slightly higher than variable rates, but we think over the long term, they will prove to be the cheapest alternative.

In the past seven years, fixed rates have dropped almost in half, with much of that decline coming in the last 12 months. They could decline further, but represent extremely good value at current levels.

Fixed Mortgage Rates (20 year term)

2) EUR/USD Exchange Rate

The moribund European economy, declining interest rates, the potential for Greece to exit the Eurozone, along with hard to ignore strength in the U.S. economy, have driven the euro to 12 year lows against the dollar — 35% below all time highs. Europe is on sale!

 

 

3) Paris Property Prices

Since the year 2000, Paris apartment prices have grown at a compound annual rate of 7.6%, with very few periods of correction. Even when all looked bleakest and property prices around the world were diving between 2008 and 2010, prices in Paris exhibited but a small downtick, before surging once again between 2010 and 2012. Since then, the average price in euros has pulled back by 5.7%.

In US dollar terms, the average price is down by a whopping 25%!

(Paris Average Apartment Price per m2 LEGEND: BLUE LINE = EUROS PER M2, RED LINE = DOLLARS PER M2)

The Unique Opportunity

Taken in conjunction, the three factors described above have a profound impact on the cost to carry a Paris apartment with a mortgage. We have created an affordability index, which shows how the monthly payment has changed over the past eight years, with the cost in 2007 as the base of 100.

From this chart we see that monthly payments in U.S. dollars have declined from a high of 146 three years ago to the current level of 93 -– a 36% drop.

To use the practical example of a 75m2 apartment, purchased at the average per m2 price, financed with a mortgage of 80% of the purchase price, the monthly payment in US dollars has declined from $4,136 in 2012 to $2,645 based on a fixed rate loan of 2.45% for 20 years. Over the life of the loan, that is a savings of $357,840 or 57% of the current purchase price of the property.

One Further Thought

For those Americans who have benefited from the gains in U.S. stock markets, it may be time for an asset switch. Since its low on March 6, 2009, the S&P 500 is now up over 200%.

Since World War II, only two bull markets have lasted this long and as you can see, when corrections come, they take no prisoners.

In our opinion, a switch from U.S. stocks to Parisian real estate is a no brainer!!

    By John Rule, Mortgage Manager / Listing Agent, Adrian Leeds Group

And now that the forces have aligned to create a perfect investment opportunity, the one caveat to investment in Paris are the current rental laws that prohibit the rental of secondary properties less than one year.

Do not let a real estate agent who represents the seller fool you into thinking this is not a risk. Allow us to assist you in finding a property that fully complies with the current laws so that you are sure to make a safe and secure investment — the do exist!

For more information, read our petition and sign it!: avaaz.org/en/petition/Mayor_Anne_Hidalgo_Paris_France_Amend_the_Paris_shortterm_rental_laws_and_make_them_fair_for_all/

We only need a few more signatures before we’re ready to send it to City Hall! Be one of them and don’t be afraid to stand up for our rights!

A bientôt,

Adrian Leeds

Editor, French Property Insider

(in New York, Photo by Erica Simone)

Email: [email protected]

 

 
  

P.S. Book a one-on-one consultation with me to learn everything you need to know about the risks of short-term rentals. The cost of the consultation applies toward our other services, so nothing is lost, but much is gained to secure your investment. To schedule the session, visit our Consultation page or email me at [email protected]