French property: Analysis of the market
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.
French older properties market
One year ago we stated that with 960,000 transactions, 2017 had probably reached a peak in terms of volumes and that prices would probably rise more sharply.
These predictions are proving true in 2018, with 957,000 transactions at the end of October and a widespread rise in prices, with very few exceptions. However it is still unlikely that the million mark will be exceeded at the very end of the year, as all the notaries' studies note a slight downturn.
Volumes of transactions
In detail, since the end of 2017, sales have peaked at between 950,000 and 960,000 transactions over twelve months. This trend, levelling off at a high level, is observed in all the departments.
Changes in projected indicators based on pre-contracts in mainland France: projection at the end of February 2019
French property market: Will the same causes produce the same effects in 2019 ?
One can assume that these volumes will hold steady, because even if certain factors are less meaningful (not least the well-known “catch-up effect” following on from a slug-gish market in 2012, 2013, and 2014), the ingredients structuring this market are still present :
- persistently low interest rates, close to their lowest point observed in late 2016 and early 2017;
- slow rises in prices, apart from Bordeaux, inner Paris and Lyon (in the French Prov-inces, the rises are by and large similar to those observed at the end of 2017, on average up 2.7% over one year in the third quarter of 2018);
- a turnover rate of the housing stock that is still high, the sign of a very active market.
The market is still healthy and very brisk with regard to these criteria, not showing signs of overheating, apart from a few clearly iden-tified regional “comets”. The early indica-tor of pre-contracts conﬁrms the dynamic upward trend in prices up to February 2019, a trend however that is expected to subside in the following months. These tendencies are expected to be more marked for older apartments than for older houses.
Similarly, while volumes remain high, they are proportionally on a par with those observed in the early 2000s (roughly 800,000 sales) as a ratio of the overall housing stock (at 1 January 2018, mainland France has 35.4 million homes according to the National Institute of Statistics & Economic Studies) to the stock of available housing, which rises by approximately 1% per annum.
All this data leads one to conclude that the market has certainly peaked in terms of volumes, the consequence - however modest- both of a threshold effect and of prices predominantly trending upwards.
The psychological factor must also be taken into account. As we have already stated, a property purchase is a signiﬁcant ﬁnancial commitment over a long period (ﬁfteen or twenty years). Fears concerning economic developments could dissuade buyers from investing in the coming months, all the more so as property is now a more heavily taxed asset class than other forms of investment.
Conversely, it is still an essential investment for housing purposes and could fully beneﬁt from its reputation as a safe investment.
The property market still correlates with the state of the economy, in particular the con-ﬁdence of households and persistently low mortgage interest rates. In terms of prop-erty investment, a major decision given the expenditure it generates, political and ﬁscal decisions also greatly influence potential investors.
On the other hand, the reasoning by anal-ogy with 2017/2018 cannot be transposed to new properties, inﬂuenced by much more short-term taxation factors.
In the French Provinces, tax relief on rental investments represent roughly 2/3rds of sales in the new properties market. So it is hardly surprising that the reorientation of the Pinel rental investment scheme on the most mar-ginalised areas has in all likelihood adversely affected part of this market. In any case that is what emerges from the sharp decline in offers for sale in the B2 sector (henceforth excluding Pinel: -21.1% over one year in the third quarter of 2018).
However this reorientation does not appear to be the only cause of stagnating ﬁgures, as reductions are also observed not just in B1 (-15.8% of offers for sale, -19.5% of reserva-tions for the same period) but also in zones A and Abis (Paris, Greater Paris, Côte-d’Azur, Swiss border zone) offers for sale with down 8.7%.
This decline in offers for sale is much sharper in single-occupancy houses (-21.4% over one year in the third quarter of 2018 at national level) than in apartment buildings (-7.8% for the same period); prices in the apartment sec-tor are still rising (+3% for the same period), whereas they have started falling in the single-occupancy housing sector (-3.5%). Beyond a ﬁscal climate that is more than ever unstable, how can one account for this discrepancy between older and new prop-erties? What cyclical evidence should one believe? Probably:
- a commercial effort massively concentrated on the B2 zone, in order to complete as many sales as possible by 31 December 2018, the fateful day marking the end of the Pinel scheme in this zone;
- less affordable selling prices than in the older properties sector in the overwhelming majority of cases: many ﬁrst-time buyers, apart from those beneﬁting from special schemes, cannot aspire to a new property;
- consequently, a market massively oriented towards investors, a more restricted and thus more vulnerable market…
- a not-inexhaustible stock of investors! One can assume that a good many of them have already beneﬁted from “their Pinel” and that this wellspring of customers is drying up;
- central government that is constantly calling for the abolition of private income from property. Even though private inves-tors will still be needed at the same time to compensate for the drastic cuts in the social housing sector!
In a context where state support is often pre-sented as indirect subsidisation, distorting a market that should only operate on the basis of supply and demand, there is every reason to fear that central government will not show signs of supporting this part of the market and helping it recover.