New records for dynamic property markets

The first five months of 2017 have seen sellers benefiting with 907,000 transactions registered and all completed at speed, notaire figures show.

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By the end of May, the number of sales confirmed over the previous 12 months hit a historic peak, easily passing the previous 12-month record volume from a year earlier (824,000 sales May 2015 – May 2016). There is no shortage of properties for sale and they are finding buyers quickly without price haggling, pulling prices higher.

For the moment, there is no property ‘bubble’ because the vast majority of sales (90%) are for homes to live in.

With sales volumes beating records set in 2006 (837,000 in May 2006) and 2012 (834,000 in February 2012) this may be a catch-up phase. This is backed up by the surge in mortgage loans taken out but these are artificially inflated by people re-mortgaging for cheaper loans.

Re-mortgaging is now starting to fall and its market share fell from 62% in January to 42% in May.

Looked at from the perspective of continuing house construction – where the number of new houses is estimated to grow at 1% per year – this means that January-May’s 907,000 record is still short of 2006’s market with its running 12-month sales of 837,000. There would need to be 930,000 sales to match that.

For now, interest rates are still very low and as long as they do not rise sharply – or not enough to break the market spirit – the present sales rhythm will continue.

Continuing low rates, in spite of rising prices, still mean deals for buyers.

As for prices, those for older properties (built more than five years ago) continued to rise in the first quarter of 2017, by 1.6% as against the last quarter of 2016 and by 2.7% over the running 12 months. Over a year, the rise is greater for flats (+3.2%) than houses (+2.3%).

In Ile-de-France, over a year, the rise in prices is growing still: +3.8% on the first quarter in 2016 after rises of +2.6% and +2% previously. This acceleration is mainly driven by the price of flats [in Ile-de-France], which are up 4.5% over a year with Paris apartments rising 5.5%.

In the regions, while prices are still moving ahead they are doing so at a more measured pace, +2.2% between the first quarter of 2016 and early 2017.

Some regional towns are still seeing prices dropping for older flats, most notably in Le Havre (-9% in a year), Brest (-7%), Dijon (-4%) and Annecy (-1%), but in other major towns and cities, prices are stable or rising.

Bordeaux is a spectacular example, up 15% but Besançon, Strasbourg, Nancy, Marseille and Lille all notched up significant rises, varying from 5% to 10%.

In regional towns the trend is, in the main, positive for older house prices despite some price falls in Toulouse (-5%), Dunkirk (-4%) and Avignon (-3%). In other towns prices are rising, with Nancy seeing prices up 10% and Bordeaux again doing well (+9%), then Béthune and Tours, both +8%.

Paris is still the engine room of the market along with cities like Lyon and Bordeaux – with Bordeaux having stolen Nice’s place for having the highest prices outside the capital. Some towns, however, have not had booming sales volumes to match rising prices.

There is a warning note for some towns as rents have not risen to match rising prices. This imbalance makes it more profitable to remain a tenant or to relocate and means that other regional towns could draw advantage in coming months from the too-good fortune of towns where prices have soared.

Looking ahead to price projections in pre-contract negotiations, end-August prices look set to continue their rise, with a year-on-year rise of about 1.2% for older houses, 4% for older flats.

Looking further forward… in the short and medium term it is the prospect of tax changes rather than any rise in mortgage rates that will be liable to dent the present dynamic.

This is particularly true for the new-build market, which is very dependent on incentives and tax breaks.

It will also be true for the market for older properties if decisions are taken to retarget investments towards stocks and shares due to better tax treatment while property is penalised, especially through the proposed revised wealth tax.

The 1.7% rise in the CSG-CRDS social charges will also have a direct impact on sellers who face capital gains tax, increasing the tax due by about 5%.

It remains to be seen how this will impact holdings such as SCIs subject to corporation tax or SCPIs.

Taxation remains a lever to be handled with subtlety.

The continuing good health of the property market benefits, for a large part, council coffers by filling the order books of building firms. These are reporting a real improvement on their situation of a few months ago.