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 property market: towards uncertainty

A consequence of the health emergency, the almost instantaneous stoppage of property deals is an altogether unprecedented situation: for the first time ever, the property sector has suddenly marked a pause, whereas before the crisis it was undisputedly booming, showing double-figure growth at the end of 2019 and at the beginning of 2020!

In the older property sector, the volume of transactions was up 11% for 2019 and showed the same growth rate at 31 January 2020, representing 1,076,000 sales at prices by and large trending upwards, both in Greater Paris and in the French provinces. In the 4th quarter of 2019, the increase was even greater: +1.3% compared with the 3rd quarter of 2019, after +1% in the 3rd quarter and +0.7% in the 2nd quarter.

Volumes of older properties in the 2000–2019 period

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Over one year, the increase in prices also surged: +3.7%, then +3.2% and +3.1%. As observed since the end of 2016, it was greater in apartments (+5.2%) than in houses (+2.6%). An analysis of pre-contracts confirmed this trend.

Yes but… The full-scale lockdown measures for virtually all French people and economic sectors, as sudden as they are unprecedented, have obviously had immediate consequences on the property transactions market.

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Real estate market outlook

The prospects for resumption are hypothetical and depend on the outcome of the only fight that is currently the priority, namely the fight against the virus.

In the short term

The announced end of the lockdown measures should undoubtedly in the first few weeks set in motion a catch-up mechanism due to a carry-over effect; it will be a matter of regularising all the sales affected by this cyclical time lag (mainly in the second quarter ), which have been frozen as a result of the lockdown. This assumption remains conditional on a simultaneous resumption of business by all stakeholders in the property chain: in particular, removals and house moves must be permitted.

In the medium term

Will this "technical" recovery of the market mark the end of the crisis? Not in our opinion: this mechanical carry-over effect will not dispel the inevitable and brutal after-effects of the virtually total shutdown of the property sector for many long weeks. The meltdown we are currently experiencing, and the difficulties in regularising sales raised by the health crisis, will naturally recur in the two or three following months, given the inertia and the natural lead times of the property market. This state of affairs will in all likelihood be aggravated by the fact that this current period is usually particularly busy, for seasonal reasons. The coming summer should there-fore automatically reflect a downward trend in volumes of transactions.

In the long term

How will the parameters specific to the property market - hitherto fairly engaging - be affected and resist, against the yardstick of a global economic environment very badly affected both in France and abroad by a planetary virus for which no vaccine has been found to date? While we can expect to see a severe economic recession, the property market could start to pick up again at the end of 2020 or early 2021, but not with the same vigour as in 2019. Property inspires confidence in a market primarily aimed at users and one that meets a real need. This need may paradoxically be exacerbated by what we are currently experiencing: in these such exceptional times, having a home has never been so important. What owner or tenant of a flat has not for instance dreamt of a garden, of late?

In the light of past crises, the banking and financial crisis of 2008-2009 is highly instructive, even though the current crisis is not directly linked to imbalances in the economy. The purchasing power of households and financing conditions are better than in 2009. The European Central Bank has already announced a large-scale emergency plan to try and curb the repercussions on the economy; and the French government introduced its collateral loan so that banks would not have to bear the cost of the crisis.
Nevertheless it is to be feared that the latter, reinforced in this stance by the recommendations in the autumn of the High Council of Financial Stability, will tighten their lending conditions and reassess the most unsound loan applications, especially those of first-time buyers. Moreover, this structural demand remains driven by interest rates that are still very attractive: the average interest rate on new home loans has reached a historic low (1.17%), after falling for 9 consecutive months. 10-year treasury bonds ("state borrowings"), which also control real estate credit rates, are also at a historic low (0.18% on 26 March 2020, in the midst of the health crisis). Property is still a safe investment compared with others, in particular stocks and shares, which since the beginning of 2020 initially showed high volatility then suddenly plummeted, the CAC 40 falling from 6,000 to 4,000 points in three weeks.

Will they be in response to the mistrust that a "sluggish" recovery could arouse in the collective subconscious? Who can already measure the impact of an economic crisis the initial effects of which are not yet quantified or even quantifiable? How will the confidence of households and institutions in property be affected in the face of a health crisis that will be all the more stressful as it is long-lasting? It is already likely that prospective buyers will unwillingly leave the property market, given the collateral effects of the health crisis. A large number of company bankruptcies are expected, which will lead to job losses. Certain regions risk seeing their socioeconomic fabric totally disrupted. Will certain occupational categories (high-income groups, event management, tourism, catering, retail, etc.) return to the property market? That is unlikely for several months, until the economy picks up again and confidence, or even certain forms of income, are restored. A lack of confidence in the long term will more or less consciously prompt some buyers to postpone their intention to purchase, as an investment in property is for many people a long-term financial commitment.

French property market: the possible scenarios

The property market's ability to bounce back will therefore essentially depend on the recovery scenarios after this altogether unprecedented crisis. While all these criteria reflect public and investor confidence in property, how relevant.

Either the episode we are going through remains relatively contained in time and extent:

  • France and Europe take measures aimed at managing the considerable public debt that will ensue (that is already the announced position);
  • The lockdown is time-bound (no second health crisis), a satisfactory medical response is provided in the short term and the non-seasonality of the virus is thereby neutralised:
    - The property recovery scenario will not necessarily be the worst-case scenario. The sector could recover fairly soon , admittedly weakened but still relatively dynamic. As the fundamental property parameters remain steady, all other things being equal, the market will in all likelihood be subjected to a corrective effect in the short term, then could pick up again, because it is still healthy and non-speculative, not least in response to the collapse of the financial markets. These adjustments could indeed bring some relief in sectors particularly under stress these past few months or years.
    - One cannot rule out corrective geographical effects: the massive recourse to telecom-muting and the attendant implementation of efficient means of communication are creating new needs. In this respect it is noteworthy that 17% of the people from Greater Paris have moved from their homes to places better suited to lockdown, bigger homes with green open spaces. Combined with the timely widespread adoption of home-working, certain city dwellers could eventually opt for property in the country-side offering better protection. But these needs are uncorrelated to the current mac-roeconomic background that will have a long-lasting impact on the French economy.

Or the lockdown persists or is repeated, and no medical response can guarantee that a pandemic does not recur:

The crisis would then be of an altogether different scale, caus-ing widespread unemployment, a reduction in the disposable income of households and sluggish growth. Mechanically the volume of transactions then prices would be in significant decline, mirroring the economic crisis that would then have followed on from the health crisis. In response to this anxiety-provoking scenario, it is of the utmost importance, both in the property sector and elsewhere, that public authorities do all they can to save jobs and enable the resumption of economic activity while factoring in health conditions. This is the official position stated at the highest level of the State. This would be reassuring in this current unprecedented context.

The longer the health crisis lasts, the more crippled the economy will be. The positive fundamentals of the property market will thus be severely tested. They will only be able to limit the inevitable corrective effects on the market if the health crisis does not destabilise the economic situation over the long term.

There is no difficulty that we cannot overcome.

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