French property: Analysis of the market

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The analysis of the real estate market is derived from the French property marker report of notaires de France. It presents the real estate situation in France: trend and evolution of real estate prices.

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Change in shape of the real estate market

At the end of November 2021, the cumulative volume of older property transactions over the last twelve months in France (excluding Mayotte) reached 1,201,000 transactions. This volume continues to increase compared to the previous twelve months, registering an increase of 17.5% over one year.

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This annual increase remains significant but lower than that recorded in August 2021 (+23% over one year). Therefore, the volume of older property transactions seems to have reached a phase of stabilisation. In a comparable context, it could recover towards a still high reference threshold between 1 and 1.1 million sales in the coming months. It would thus be close to that at the end of 2019, another sign of an appetite for real estate, which is also observed quite generally in all OECD countries.

The French have accelerated, as a whole, the implementation of their real estate projects. And if the accentuation of the movement of travel from large metropolitan centres to smaller municipalities is one more branch in the morphological tree of the real estate market, it remains to be put into perspective with regard to the overall volume of these transactions.

As such, while they may have locally led to a rise in prices and consequences on the accessibility of properties by creating a disparity with certain local populations with a lower real estate purchasing power, this effect remains limited to certain geographical areas. Conversely, this movement has had upsides by relaunching the real estate market in smaller towns that had hitherto been more neglected and encouraging them to develop infrastructure, in particular reception infrastructure.

But as the positive effects of the social and economic shock absorbers put in place to alleviate the health crisis diminish, the savings stored in 20201 will have been used up, and the volume of transactions could change in the medium term. Nevertheless, the economic environment specific to the real estate market remains reassuring, with interest rates on new housing loans remaining at a low point at 1.12% in November 2021, thus reserving for real estate its quality as a safe and sustainable investment.

In the provinces, the rise in prices is intensifying

with +8.8% between the third quarter of 2020 and the third quarter of 2021. As since the start of 2021, the rise in house prices (+9.4% over the year in the third quarter) is stronger than that of apartments (+7.5). In Greater Paris, the prices of older properties are also on the rise with +4% between the third quarter of 2020 and the third quarter of 2021. This increase is much more marked for house prices (+7% over one year, after +6% in the second quarter and +7.3% in the first quarter) than for apartments (+2.5% over one year, after +2.4% and +3.6%). As for the whole territory, in Greater Paris the annual increase in house prices is more marked than that of apartments since the fourth quarter of 2020, which had not happened since 2016.

Preliminary contracts

The projections based on preliminary contracts in mainland France foresee for the end of February 2022 a continuation of the annual price increase: from February 2021 to February 2022, prices should increase by 5% for older apartments and 10.1% for older houses. Over the last few months, the rise in prices should be less marked with changes over three months of around +1% for apartments and +2% for houses at the end of February 2022 (against respectively +1.4% and +2.5% for the changes over three months at the end of September).

The projections of preliminary contracts highlight an increase in prices in medium-sized cities and towns such as Angers, Limoges, Dijon or SaintNazaire to the detriment of large cities such as Bordeaux, which have probably reached a peak and which will experience stabilisation of prices or even a slight fall.

Buyer solvency and context of prudence

Faced with these price increases, the decision of the High Council for Financial Stability (HCSF) relating to the conditions for granting mortgages, applicable and coercive for banks from 1 January 2022, aims above all to preserve the solvency of buyers in a context of prudence. It should be remembered that these prescriptions, which the banks had begun to standardise, entail a limitation to 35% of the share of income devoted to the repayment of the loan and the payment of the borrower’s insurance (debt service-to-income ratio) and a limitation of the duration of indebtedness to 25 years. There is a risk of seeing first-time buyers without a deposit at a disadvantage. It should be noted that the banks can, however, waive these obligations on up to 20% of their loan production per quarter.

Concerns about the new home market

The performances posted in the older property sector in 2021 should not hide the concern due to the difficulties of the new houses market. The low production of new homes for several quarters has contributed directly to the rise in prices for older properties, even more so when the stocks of older properties for sale are dwindling. Besides, wasn’t the first objective of the ELAN law of 2018 to build and renovate “more, better and cheaper”? Wouldn’t it be appropriate to encourage building permit authorisations by speeding them up in certain situations? Or make the neutralisation of very old specifications in certain urban centres possible?

Everyone is aware, moreover, that the revival of the real estate sector and the construction of housing in France remain supported by the tax incentive, since the Pinel system currently represents around 50% of the sale of new housing (Source: FPI).

Property market: the new housing market

Impact of the Climate Law and new DPE (energy performance assessment)

The official intention of the public authorities is to promote the virtuous classification of a property for sale by economically stigmatising thermal sieves, but by supporting renovation in order to improve the stock. This trend goes far beyond our borders and is inevitable. To this end, the State has also set up energy renovation aid schemes to support the transition. Similarly, the Climate and Resilience law now directs the allocation of the works fund in condominiums to energy renovation. If the modification of the DPE perhaps pointed towards an increase in sales volumes of classes F and G, the notarial real estate databases, as things stand, do not support this analysis. It seems too early to be able to say that this trend can exist. Similarly, only the coming months will make it possible to verify whether the primary intention of the public authorities – to neutralise the number of thermal sieves, even if the classification criteria change – materialises.

From the analysis of the notarial real estate databases on the distribution of sales of older properties according to the DPE at the level of mainland France it appears that the overall energy performance of the real estate stock has generally improved over ten years.

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