As we are entering the second half of the year, we would like to take this opportunity to give you an update on the Paris market and to discuss the forecasts being made for the future.
June 2007
Following the election results, the heat is expected to rise in the French real estate market
January 2007
Faced with the weakening dollar, more and more foreign buyers are investing with Euro loans
The most noticeable recent trend in the market has been the slow-down in the past few months leading up to the Presidential elections, with many owners holding off listing their properties while awaiting the election outcome. The number of apartments available had been significantly lower than in the same period in previous years.
Now that we have the election result, many more apartments are coming back on the market and there is a strong feeling that the market will strengthen even more in the coming months.
As Mr Sarkozy has promised to help French people own their own homes (with projected government refunds on property loan interest rates etc.), there is the expectation that prices will continue to strengthen as a result of the projected rejuvenation of this market which has been declining for quite some time.
Prices in Paris, although rising steadily, are still significantly lower than other major European cities such as London, Amsterdam and Dublin, and with the finishing of the high-speed train link to London, the English-buyers portion of the market is expected to burgeon! This will have an impact on the prices in the central arrrondissements and the areas around the Gare Du Nord. The International buyers have significantly larger budgets than the French and this is expected to keep the prices buoyant in a market where the notaires had previously forecast a levelling off in the rate of price increase.
The weakness of the American dollar is having a noticeable effect on the number of Americans purchasing here at present and this is slowing somewhat the rate of increase in the traditional tourist areas such as the 6th and the 7th. Americans are facing a stiff currency exchange which has lowered the relative amounts for their purchases resulting in only a fairly steady rise in these areas as opposed to the massive increases of previous years which saw annual increases of up to nearly 16 % in the 7th for the last quarter of 2006 (figures courtesy of the Chambres de Notaires de Paris).
It is projected that confidence in the American economy will not recover significantly in the upcoming months. Despite the poor dollar to Euro conversion rate, it is still a good investment for US buyers to purchase in Paris, especially if taking a French mortgage. Our partners at France Home Finance, mortgage brokers who specialise in non-resident borrowing, have advised that French banks are now offering more and more competitive finance packages, with more flexible borrowing conditions, making it much easier to obtain an attractive loan product that suits the International client.
With a French mortgage an investor need only apply 20 to 30% of the price in cash thus minimising the effect of the exchange rate. If the property will be rented, the rental income in euros can often cover the mortgage payment in euros. As rental returns in France are historically very high and interest rates are significantly lower than in the US, UK and Australia, the return on investment can be compelling. Finally, with a weak US real estate market, it makes sense now more than ever to diversify investments with French property.
We also work with a currency conversion company, HIFX, who can offer very competitive rates and can even lock the best rate into place for up to two years ahead. This is reassuring for buyers wishing to purchase just for their personal use without having the mortgage repaid by a French-derived income, as in a currency market of such variability, the monthly repayments can be planned in advance without the worry of not knowing just how much the exchange rate will change from day to day.
Many of our US clients are investigating the option of joint ownership in order to maximise their investment potential. In order to offer the best service to our clients, we are happy to advise the best way of setting up a purchase of this type, as well as putting the various parties in contact with one another in order to facilitate a purchase which will be more rewarding than would be possible with the limited individual budgets available as a result of the lower exchange rate.
Many clients have noted that the real estate market in the US (and Spain) is in a state of decline, with the Spanish market experiencing severe over-development resulting in a devastating loss of market value. They ask if this trend will be repeated in the Paris market and I have to say that it seems highly unlikely.
Paris is a city of limited size (being bound by the peripherique) and is one of the most visited cities in the world. It is also the hub for accessing other European cities and the quality of life here remains very high. Because of its constant attraction to foreign investors as well as having a sound basis as a residential city for French families and also for a number of other socio-demographic reasons (See : Forecast Market June 2006), it does not seem likely that prices in Paris will fall in the near future, if at all. It remains a dream of many people, both French and foreign, to buy here and the investment potential for the rental market remains high.
There is however a change in the targeted apartments for the vacation rental market, with one and two bedroom apartments being the smallest size accepted by many of the rental agencies. There is now a glut of the studio apartments on the Paris rental market and we suggest that clients wishing to invest in the vacation rental market do not purchase anything smaller than a one bedroom, unless they intend to manage the apartment themselves and have a private clientele in mind –or unless the apartment has significant advantages which will make it stand out from the competition!
The current market prices are still affordable with the recent deceleration of the price increases, with Paris as a whole finally passing beneath the symbolic bar of +10% with an annual increase for 2006 at + 9.9% ( as opposed to +14% in 2005).
Despite half of the arrondissements having seen an increase of less than 10% : the 5th (+1.6%), 8th (+6.5%), 9th (+8.5%), 10th (+9.1%), 11th (+7.4%), 14th(+8.2%), 15th (+7.4%), 16th (+8.9%), 17th (+9.9%) and 20th (+9.5%)), there were six which stayed strongly above the increases seen in 2005, such as the 1st (+12% in 2006 against +11% in 2005), the 6th (+13% / +8%) and the 7th (+15.8% / +11%). The rest also showed increases above +10%: the 19th (+12.8%), 18th (+13.4%), 13th (+11.2%), 12th (+10.8%), 4th (+12.4%), 3rd (+14.1%) and the 2nd (+15.4%) (figures courtesy of the Chambres des Notaires de Paris).
Overall the Paris market remains steady with a slowing down of the rate of increase in most areas, but with the number of available properties not meeting the demand from buyers, it is still a very strong market and is expected to remain so. The expected increase in the numbers of French residential buyers as a result of the recent election promises will also keep the market buoyant and the prices are expected to keep their slow but steady rise in most areas, with the more desirable areas remaining at their higher rate of increase. All of this points to it still being a good time to invest in Paris real estate, be it for personal use or investment purposes.
We look forward to your being in touch with us to discover how you can become a Paris property owner.
