"Although low interest rates led to a significant rise in prices in 2019, the situation is expected to steady somewhat in 2020.
The year 2019 saw the market for old properties leap from record to record, starting with the number of transactions, some 1.059 million according to notaries, which was up 100,000 compared to 2018, representing a 10.4% increase. The Century 21 network’s 2019 balance sheet (902 agencies) published on January 6th indicated a 3.1% increase per sqm for apartments and a 1% increase for houses. This was fairly close to figures recorded at the end of September 2019 by France’s Notaries which observed + 4% for the former and + 2.5% for the latter.
"Almost all over France, after four years of steady increase, the price per square metre topped the peak reached in 2011”, comments Laurent Vimont, the Century 21 CEO. “The market is targeted notably by first-time buyers (under 40 year olds) who are the most active with some 48% of transactions, as well as second-time buyers and investors. The market for secondary residences continues to shrink, dropping to less than 6% of transactions.” The Blablacar and Airbnb generation is making its mark.
Results may largely be explained by the cost of financing a purchase, which continues to fall: the average loan, granted at a rate of 1.12% compared to 1.44% in 2018, is below inflation for the eighteenth month in a row. Mortgages are granted for a two hundred and thirty month period (nineteen years), a term which is also unprecedented. This has however stabilised since the beginning of the year. Despite these factors, the financial benefits no longer compensate for the irresistible price rise in major cities such as Paris, Bordeaux, Lyon, Nantes or Rennes.
"A safe haven"
In October the average price per square metre in Paris was in excess of 10,000 euro at 10,170 euro, according to the capital’s notaries. The latter anticipate 10,380 euro by February. Over just one year, prices in Paris have gone up some 6.6% in a trend that was still accelerating at the end of 2019. Again according to notaries the number of sales, on the other hand, dropped by about 9% to around 34,000. “Senior management reign supreme in the capital, representing about 48% of purchases, compared to under 5% for employees and workers” notes Mr. Vimont. “Investors today represent 31% of transactions as opposed to 22% last year, a meteoric rise."
The Parisian luxury real estate market – with barely 3,000 sales at prices over 1 million euro of which 500 were at prices exceeding 2 million euro - is short of supply, for new-build is practically non-existent in the capital to some extent owing to an obligation to increase social housing by 30%. As a result beautiful Haussmannian family apartments at prices ranging from 12,000 to 14,000 euro per square meter (7% more than in 2018) are snapped up within a few days, or often even after just a few hours. According to market leader Daniel Féau, the sector is booming and is increasingly active thanks to Brexit escapees, a majority of whom are of French nationality: "Foreigners tell us that there are few cities as beautiful and attractive as Paris”, says Charles-Marie Jottras, CEO of Daniel Féau, “and the shortage of luxury assets fuels the price increase. "
Thanks to the Grand Paris project the three departments that make up the “petite couronne” (Hauts-de-Seine, Seine-Saint-Denis, Val-de-Marne) are becoming increasingly assimilated to the capital, with the same downward trend of 5% in the number of sales in comparison with 2018. According to Century 21, in 2019 prices soared by an average of 9%. "Here middle and senior managers are now in the majority, including in the Seine-Saint-Denis department, but in common with Paris investors are increasingly present, representing between 20% and 22% of purchases” observes M. Vimont. Among these investors are employees and workers who, unable to acquire housing for themselves, place their savings in little apartments at less than 100,000 euro as a nest-egg for retirement. “They represent over a quarter of rental investment” says M. Vimont. “25% of our clientele comprises investment borrowers" confirms Sandrine Allonier of the credit broker Vousfinancer.com. “They are taking advantage of low rates and real estate is definitely a safe haven."
The “grande couronne” which comprises the Yvelines, Val-d'Oise, Seine-et-Marne and Essonne departments benefits from the centrifugal effect of Paris and the “petite couronne” with the number of sales on the increase. Prices however are in general fairly stable, with a 3 to 4% increase over a year.
A settling in the market
Bordeaux has witnessed some astonishing increases over recent years, but is finally settling down with a price per square metre up in 2019 by just 1.5% at 4,320 euro. The city nonetheless between 2009 and 2019 moved up from the 5th to the 2nd place among most expensive cities in France trailing Paris, according to notaries. Lyon shares second place at 4,320 euro per square metre, a 10.3% increase in one year. Cities in the west are also on the rise, with Nantes at 3,150 euro per square metre moving from 9th to 5th place on the list. Rennes witnessed a 7.6% increase to attain 2,750 euro, moving it from 13th to 7th place. To the east Strasbourg, after a long slumber, has woken up with a price per square metre increasing by 2% to attain 2,680 euro, and has jumped up three places from 12th to 9th. Toulouse, with a price/square metre increasing 5.7% over the year, has climbed two places to reach 8th place. Despite substantial price increases, several cities have however gone down in the ranking. In Nice, for example, in 2019 the price/square metre increased by 3.8% to attain 3,820 euro, but the capital of the Côte d'Azur lost its 2nd place in the national ranking to drop down to 4th. Montpellier (+ 1.5%) fell from 7th place to 10th, Marseille (+ 0.7%) from 6th to 11th, Grenoble (+ 2.4%) from 8th to 12th and Toulon (+ 1.4%) from 11th to 13th.
What’s in store for 2020? Two elements would appear to announce a slowdown in the market: on the one hand, the difference between the seller’s initial offer price and the price at which the sale is finally concluded. This went up to reach - 6.2% in 2019 as opposed to - 5.3% the previous year. And, significantly, the second element is the slowdown in sales in Paris and the inner suburbs.
Banks may well become more cautious regarding loans, following the recommendations of the High Council for Financial Stability (HCSF) which in an alert dated December 12th 2019 went so far as to threaten to render mandatory from the second half of 2020 two rules applicable to lending organisations,: to not grant a loan that represents over 33% of a borrower’s income, or to grant a loan which exceeds a twenty-five year term.
The organisation highlights that 27% of borrowers, especially among rental investors, are seeking loans at up to 35% of their income, and 5% on terms that exceed twenty-five years. The HCSF nonetheless considers that the tap should not be turned off too quickly, and that bankers should be able to avoid these criteria in 15% of cases, within the limit of a maximum debt of seven years income. This applies to the purchase of a main residence, and the organisation implies that regulation must be firmer in other cases.
“From October 2019 on banks, and in particular those that had reached their targets, began to limit access to credit” says Sandrine Allonier, “and they refused to finance without a personal contribution from households whose incomes were below 40,000 euro per year.”
Another concern for the HCSF is the banks’ margins as well as their rates which they consider to be too low, and in particular when a loan is renegotiated. These elements should contribute to certain stability in rates and in the real estate market."