French property prices have been stabilising after several boom years and a slight drop is now likely.
However, contrary to fears across the Channel, no serious price crash is expected, say experts.
Eric Allouche, CEO of ERA Immobilier France, which has 500 agencies, said: “I am not pessimistic about the market. Property is still attractive and that is not going to change. We have started a period of stabilisation or slight lowering.”
Sales back to a ‘normal’ level
Century 21 predicts an average potential lowering of 5-7% in 2023. However, agencies agree there are too many unpredictable factors to speak with confidence for the long term.
Notaire data for 2022 shows just over 1,100,000 sales, a 6% drop on 2021 but still the second-highest yet, 2021 having been a record.
Edouard Grimond, property spokesman for the notaires’ professional body CSN, said they expect sales volumes to continue to lower.
“It is not a collapse or crash. We’ve had constant increases in the last four or five years but at some point this had to stop. We’re perhaps coming back to a more ‘normal’ level.
“In a few areas, prices are still rising slightly. In others, there is stagnation or they are just starting to drop.
“The reduction in sales and the increase in interest rates and inflation have not caused heavy falls in selling price.”
Generally, however, fewer sales means more homes remaining on the market, so it is natural for prices to lower.
Sales of around one million are likely this year, said Mr Allouche. This compares to around 900,000 five years ago.
“Prices went up a lot, so if these drop down a little again, it is not a catastrophe.”
Energy-efficiency is becoming more important
Century 21 says people are more worried about “what there will be left to live on” after accommodation-related costs.
So they are looking more closely at DPE energy-efficiency checks, and a Covid-years trend of prices rising more for houses than flats as people sought space and greenery is reversing, with buyers more wary of the costs of maintaining a house.
“Often when there is a strong trend, there is a rebound in the other direction when things change,” ERA’s Mr Allouche said.
Rural areas are more affected than towns by this as they have more houses. However, prices are also expected to fall more than average this year in certain cities which have seen steep rises.
This includes Paris, though property there remains a solid long-term investment, said Mr Allouche.
Mr Grimond said Paris was the first to see price falls, with Lyon, Bordeaux, Nantes and Lille now affected. Rennes, however, has for now continued to show year-on-year rises of around 5% and the picture was similar in Nice.
In coastal areas such as Brittany and Loire-Atlantique, price rises for second-home properties, or even main homes to be used for home-working due to demand from Parisians after Covid lockdowns, have eased, Mr Grimond said.
Buyers will haggle if property needs energy-efficiency upgrades
As houses are often harder to keep heated than flats, it is worth carrying out renovations, so buyers should consider if they need to budget for insulation or replacing oil-fired heating with a heat pump, advised Mr Allouche.
He said renewable-energy heating systems are often good value to run.
“Some rural ‘character’ homes are hard to renovate but retain a certain cachet and charm.
“Perhaps you could install a wood-burning heater, which is not too expensive and has high energy-efficiency.”
The biggest problem, he said, is for homes no longer deemed ‘decent’ to rent out. “You can, however, buy one of these properties to live in. In which case, we still advise buyers to consider renovations to avoid their property losing value because it doesn’t meet the standards.
“And sellers of these should expect buyers to negotiate, or should otherwise consider works to sell for more. Some sellers will accept a reduction to move on and let the buyer undertake the renovation work.”
Buyers in France protected from steep interest rate rises
Mr Allouche said the overall picture is good, with inflation contained (around 6% year on year) compared to many countries.
He added that ‘anxiety-inducing’ factors such as the war in Ukraine or pension strikes can encourage people to buy property for a sense of stability.
The inflation rise has seen interest rates double in a year to around 3-3.5%, including insurance against death and incapacity, but these are capped by France’s taux d’usure, above which the cost of borrowing may not rise.
This cap can “act as a brake on a rise which could dissuade buyers who might think buying will cost too much”.
The cap is currently around 3.5% – up a percentage point on last year. It is to be revised monthly, as opposed to quarterly, for the next six months.
This greater flexibility might enable banks to agree to more loans – for example, to those with smaller deposits.
Fixed-rate mortgages give buyers confidence
French banks also still mostly offer fixed rates, which are ‘safer’ than the variable rates common in the UK and US.
“You can then get the situation we saw in the US with the subprime crisis where rates rose and borrowers could not repay loans. Buying at a fixed rate helps safeguard your money.
“If I borrow now for 20 years my monthly payments will stay the same whereas inflation could mean if I buy in five years, I won’t be able to borrow as much – and prices may have risen.”
Some bankers predict rates could rise to 6% (including insurance) by the end of the year. Mr Allouche said this was possible but is probably an overestimate.
“Interest will continue to follow the inflation rate, so if it rises, for sure the rates will rise, but there are signs that inflation is easing.”
‘Expect to negotiate around 6% on asking price’
He said sellers should listen to their agents, who can provide a realistic price estimate based on objective factors, not just “a feeling”. “If you price too high, you risk not selling, or if the market drops, selling later for less.”
Philippe Buyens, managing director of the Capifrance group, told BFM Business the market was holding up well, with sellers loath to lower prices below what they consider their homes are worth.
There is, however, more negotiation now, he said, “but that is how it used to be. We have tended to forget because 2021 and 2022 were unusual”.
Buyers can expect to negotiate around 6% on average from selling prices, a market ‘barometer’ by online property specialist LPI and SeLoger says.
Gérard Hidskes, of the Valora agency in Ribérac, Dordogne, said in 2021 “everyone wanted to rush from town to buy houses in the country”. This has died back but not everyone realises.
“I had a house on sale for €600,000 and the owners took it back last year and gave it to another agency who said it could sell it for €750,000. Now it is back at €600,000.”
Mr Hidskes also had two young couples whose purchases were delayed because of banks having problems with the taux d’usure.
“I think they will get loans eventually but it shows how things can slow down and why volumes are dropping.”
British buyers replaced by French post-Brexit
Holiday home sales and northern Europeans moving to France are continuing, but “perhaps with fewer British people”.
“The post-Covid rush has gone but it is still a dream for many. The market is not racing but it is ticking along.”
Robert Welton, of Bel Air Homes, Brittany said: “There has been a slight slowdown since summer 2022 but houses are still selling. At the worst I expect prices to be flat at the 2022 levels. There are not many properties on the market but there are still buyers.”
Mr Welton said British buyers, either of second homes or new residents, make up around a quarter of his business, down from around 45% before the Brexit vote, but their place has been taken by French buyers.
Belgians and Dutch, with a few Germans and Italians, made up around 20% of buyers, which has not changed.
‘Prices will not fall enough to make waiting worthwhile’
“We are optimistic and just don’t see the gloom we see on television,” he said.
For those thinking of buying, delaying for lower prices later is “not a good approach”, according to Mr Allouche.
“Imagine you borrow €180,000 at 3% with €1,000 to pay per month for 20 years, after which time the loan will have cost you €60,000. If rates reach 6%, it will cost you twice as much, €120,000.
“So prices would really have to fall a lot to make it worthwhile and I do not see that happening in the coming months.”