Sales may peak but ‘real’ prices still a bargain

Below the term ‘older’ homes refers to properties built more than five years ago. Most figures relate to the third quarter of 2017, the latest period for which final notaire sales figures are available. As notaires deal with all French property sales their market analysis is the most comprehensive available

Property prices and sales volumes are continuing to grow both for older flats and houses and this applies to the regions as well as in Ile-de-France.

At the end of October 2017, the number of sales in the 12-month period before hit a new record at 958,000 transactions. This compares with 829,000 sales between October 2015 and October 2016 and shows record growth in departments such as Bas-Rhin (35%), Landes (33%) and Charente-Maritime (29%).

Continuing rising sales since the start of 2015 mean the end of 2017 will probably be the peak. However, this record does not mean the property market is out of control, because the reasons for the growth are known (mainly a catching-up from a particularly sluggish market in 2012, 2013 and 2014) and because the structural make-up of the market is stable:

‒ Mortgage rates remain low and are once more on a downward trend, after a few weeks of modest increases;

‒ In the regions, increases have been generally measured, since prices have not yet reached those of 2011 and are even falling if they are corrected for the effects of inflation, which is, itself, very measured;

‒ A detailed analysis of the turnover rate of housing stock, as well as the median duration of ownership of the properties sold, makes it possible to rationalise these high volumes with regard to the large stock available.

Thus the number of people owning property, notwithstanding the large number of transactions recorded last year, remains slightly lower than that of the 2000/2007 period.

A risk of the market overheating seems unlikely as pre-sale contracts (promesse de vente or compromis), a key indicator, are tending towards a stabilisation of prices of older housing compared to those of September 2017.

Indeed, the catch-up effect is not infinite and could reach its current limit in 2018, thus generating somewhat less dynamic volumes.

In addition, in the third quarter of 2017, the rise in prices of older housing is increasing, up 1.3% on the previous quarter compared to 0.7% the quarter before. As seen since the end of 2016, the rise is greater for flats (1.6%) than for houses (1.1%).

Over the 12 months, the rise in prices continues its acceleration: 3.7% up on the third quarter of 2016, after 3.1% for the same period the quarter before. The rise is mainly due to the price of flats, which grew 4.8% in 12 months, against 2.8% for houses.

In Ile-de-France, the price of older properties rose again: 1.6% up on the previous quarter against 1.2% the quarter before. Over a year, the rise reached 4.8% compared to 3.9% in the second quarter and 3.4% at the start of 2017. This acceleration is above all linked to the rising price of flats (up 5.8% over a year), with Paris prices up 7.8%. House prices also rose over the year, up 2.7% against 2.1% the quarter before. Pricing from pre-contracts shows Paris flats were set to reach €9,200/m2 in February.

In the regions, the rise in prices of older properties is slightly weaker – up 1.2% on the previous quarter. Prices rose less markedly over 12 months: 3.2% in the third quarter of 2017 compared to the same period in 2016. This figure was 2.7% the quarter before. Flats, again, took the lead, up 3.9% against 2.8% for houses.

Prices are still below those in 2011, so the ‘rise’ may be an illusion. Flat prices are, on average, still 1% below 2011 (down 4.1% in the regions), but house prices are down 2.9% in Ile-de-France and 3% in the regions. Plus, correcting for inflation of 3.9% from the market peak in 2011 to October 2017 shows all of France in deficit – down 4.7% for flats, 6.6% for houses.

Focus on the regions

Bordeaux becomes the most expensive of French cities with more than 150,000 inhabitants with prices for older flats hitting €3,730/m2, just nudging out Nice, on €3,720/m2.

Prices for flats in the wine capital also rose the strongest year-on-year – up 11.9% – and the upgrade of the Paris TGV line for two-hour journeys is without doubt the main reason, although the city’s policies on urban landscapes and transport also help.

Lyon is third with prices at €3,670/m2 and Lille fourth on €3,130/m2.

Saint-Etienne is the least expensive for flats at just €890/m2 with properties costing half the price of those in Le Havre, the next cheapest, at €1,590/m2 and Angers €1,870/m2.

If we look at the largest differences in price over a ten-year period, Bordeaux has seen the highest rise, at 46.6% and Saint-Etienne has seen prices plummet the most, down 35.3%. Nice remained in first place for the price of older houses, followed by Toulon then Lyon, but some more rural departments saw prices fall around 5%, including Corrèze, Creuse, Haute-Loire, Lozère, Mayenne and Haute-Vienne.

People are tending to keep properties for longer, with average ownership lasting nine and half years for flats and 10 years four months for houses – this is three years more than in 2006.

One major reason is probably heavy capital gains taxation (34.5%, but 36.2% from the turn of this year – on a sliding scale but with a surcharge in some cases) for a very long time – zero capital gains tax only applies after 22 years but it takes 30 years for social charges to end.

Notaires suggest that relief from CGT would probably release many assets and give buyers the advantage of low mortgage rates.

Banque de France figures show that the average mortgage lasts 20 years and two months and the average interest rate fell to 1.64% in November from 1.67% in October.

Re-mortgaging activity plummeted over much of 2017 but its share of new mortgage activity stabilised at 23% in October and then to 20% in November after being as high as 62% in January 2017.

Britons join with Scandinavians to rival Italian buyers

The share of non-resident foreign buyers in the Provence/Côte d’Azur and Corsican market changed completely between 2006 and 2016 and while Italian buyers are still No1 overall their share has continued to fall since 2009.

They now make up just one buyer in five against nearly one in two in 2009.

British and Scandinavian buyers have stepped in – although no actual sales figures are given, just percentages – with the British making up 5% more of the market since 2009 alongside Scandin­avians up 7% and Germans up 5%.

The type of property that they buy is different from one nationality to the other, however, with Italians opting 95% for flats with 80% of them studios or one bedroom properties that are predominantly in the lower price range (prices are in the bottom 25% of prices paid).

British and Scandinavian buyers are looking more at houses, opting 40% and 30% respectively for these – and the majority of six rooms or more.

At the same time they are also aiming more for the upper end of the price scale (with prices in the top 25%).

Nearly one in two Italian buyers in Provence/Côte d’Azur and Corsica opt for a cheaper property while one in three British and Scandinavian buyers purchase at the more expensive end of the market.

Landowners can get 85% reduction in tax

New tax measures in 2018 are seen as possible ways to open up the property market by encouraging more sales and pushing landowners to offer building land for sale.

The new form of wealth tax, IFI Impôt sur la Fortune Immo­bilière, has drawn criticism from some commentators for focusing on property holdings, but the notaires feel that this will encourage some owners of long-held properties to put them on the market and thus stimulate activity.

The new finance law’s section on building land sales – where a lack thereof is stifling construction in housing shortage areas – aims to boost the market by offering a 70% capital gains tax reduction on land sold up to the end of 2020 in shortage areas A and Abis. This rises to 85% if the buyer commits to include 50% or more of social housing.

Notaires see it stimulating the market although the first houses will not be built until 2019.