Property buyers and investors are finally returning to France’s real estate market after three years of dismal performance.
Property prices are now becoming a source of hope after a sudden increase in the volume of transactions towards the end of last year. During November 2015, 792,000 transactions were recorded, a 12.5 percent increase on the same month last year. The surge of interest can be attributed to a few factors, including the large supply of listed residential property, motivated sellers and economic risk, which has investors choosing tangible assets like real estate over volatile stocks and bonds.
Lack of new builds pushes existing home sales
Industry experts are not convinced that the French property market is quite recovered yet, especially since quarterly house prices in Metropolitan France have been showing year-on-year declines since 2012, according to the National Institute for Statistical and Economic Studies (INSEE).
In fact, Martin Janiko of economy.com reported that prices will no doubt continue to fall until the end of 2016 in light of the poor GDP performance and lack of wage growth. Nevertheless, while the reasons behind the stark increase in November transactions are not yet clear, existing property has somewhat benefited from it.
The number of transactions for existing property rose sharply during 2015 after lower government approvals on new projects caused a 4.1 percent decline in residential construction. In turn, existing property prices gained slightly (0.3 percent) in the third quarter of 2015 compared with the previous quarter. According to a CGDD ECLN survey in November 2015, 22,600 new homes were reserved between July and September, marking a 16 percent increase on reservations during the same period in 2014.
Republic in price purgatory
Admittedly, last year wasn’t a fantastic year for French property despite November’s brief upturn. In fact, the only region demonstrating decent price growth is the island of Corsica, which is also a popular tourist destination for French holidaymakers.
In Greater Paris overall prices picked up in the third quarter but decreased by 1.3 percent on the previous year. Prices are not expected to change much in the coming months. Furthermore there is a shortage of studio and one-room apartments which leaves buyers without any bargaining power. The median price per sqm in Paris is €8,020.
In the French provinces, flat prices (–2.3 percent) suffered more than houses (–1.7 percent) from the decline according to figures from Notaires de France. Cities with positive price growth are relatively provincial in terms of distance from the capital, but have excellent access by road, rail and even internal flight connections.
Prices in Tours, Limoges, Lyon and Strasbourg are all growing. Tours is a historical town and gateway to the famous Loire Valley Chateaux within 2 hours of Paris. Lyon, close to the Swiss border is a beautiful city with strong chemical and pharmaceutical industries.
Strasbourg, home to many famous EU institutions, is located on the border with Germany. Limoges, the least well known city of the group, is a recognised “green capital” with relatively low livings costs, surrounded by rolling hills and quaint villages.
Foreign buyer popularity declines
The proportion of transactions to non-residents has been declining since the ’08 crisis, making up just 1 percent of all sales in 2015 compared with 2.8 percent during the 2006–07 peak. According to research by BNP Paribas, British are by far the biggest foreign buyers in France, accounting for almost one-third (32.6 percent) of all sales to non-residents, followed by Italians (15.3 percent) and Belgians (11.1 percent).
Despite a fall in British activity in France, they still greatly outnumber other nationalities especially in the centre and the West. The most popular parts for U.K. buyers remain old favourites like Normandy, Brittany, the Dordogne and the Loire.
Regions that are further east and/or south tend to have a different buyer hierarchy. For example, Italians are the main buyers (28 percent) in PACA while Belgians are a lot more active in the North East (28 percent) and only 7 percent of foreign buyers in Paris are British.
Risks and revenue 2016
French property is going to bounce back, however it is now a question of time and economic performance. There is no doubt that 2015 was a difficult year for the Republic, during which it was hit by devastating terror attacks as its economy struggled to pull GDP growth out of the mud. It achieved just 1.1 percent year-on-year GDP growth in Q2 2015 according to Eurostat.
The main factors determining foreign activity over the coming year in France will be the economic performance of buyers’ home countries, low interest rates and of course, whether the U.K. is to stay or leave the European Union. The financial toll of this possible decision has already weakened the pound against the Euro.
For owners eyeing long-term revenue they can achieved it in two ways: holiday homes (that are not rented out) will gain in value over 10–15 years (once the initial buying expenses are recouped), making it worthwhile to resist panic and hold out the next few years in relative serenity.
Alternatively, they can put it on the rental market and find long-term tenants that will provide steady income as France’s most popular cities already have a surplus of short-term holiday property to let.
Main image: Many foreign buyers dream of renovating one of France’s many historic houses. By martinm303 / Depositphotos
This column was written by Bashitha Kariyawasam of property portal Tranio.com