French property market review 2019 and outlook to 2020
French Property Guide
Real estate market review 2019
2019 has been a good year for the French property market. Both transaction volumes and prices have grown consistently throughout the year, though not, perhaps, so consistently across the country.
While prices have gone up, this doesn't feel like a bubble; there's relatively little speculative buying in France, partly owing to the long-term nature of rental contracts, and partly owing to tax on capital gains which discourages fast sales. A stable economy which is now one of the higher growth markets in the eurozone, together with low interest rates, has provided the basis for gradual appreciation in property prices.
The Notaires association already noted 2.6% growth in resale property transactions in the year to March 2019, since when each month has shown further increases. FNAIM, the estate agents' association, counted over a million sales in the year to September 2019, up 10%. (That's more than double the levels seen in 2009, during the depths of the credit crunch.) Growth in transactions has been fairly consistent across almost all departments, for the fifth consecutive year.
But while resale property is doing well, the notaires call new property "a broken market", with approvals falling 2% and completions down 6.6%. Houses have proved resilient, but apartments are doing worst. There simply isn't enough demand for new property, despite tax breaks aimed at new building for the rental market.
Property prices in 2019
Prices have been going up, but that increase isn't homogenous; it's been driven by the major conurbations with greater Paris, Lyon, Nantes and Bordeaux prominent. Apartments in the Ile de France, for instance, shot up by 4.9% in Q1 2019, while houses in the provinces have saw only 2.4% price growth. Bordeaux appears to have got a little overheated and is now gently subsiding, but generally, it's the smaller towns and rural areas which are underperforming. There's not the growth in employment there to drive the market forwards - the French property market is very much a domestic market even in areas like Nice (with its big technology sector) and Toulouse (home of Airbus).
So while two-thirds of the French departments are seeing increased house prices, in about one third of departments, prices were either stagnant or fell. That trend is clearest in the north and north-east of the country - for instance although Nancy has a big student population and a booming rental sector, it hasn't seen property prices keep up with Paris or the other major cities.
FNAIM's September figures showed continued price growth. However, there's some concern over whether Paris prices are sustainable. They are now well past the €10,000 per square metre mark, and similar to prices in other capital cities. Still, Knight Frank believes that Paris will see the highest price growth of any major world city in 2020, at 7% - keeping it ahead of runners-up Berlin and Miami.
What does this mean for you if you want to buy a rural home in Deux-Sevres or Creuse? It most likely means you'll see prices flat, though if you're buying a place to restore, you need to be careful that your budget doesn't exceed the likely price of the finished property.
France is the world's most visited tourist destination, with over 90m visitors in 2018. Major Paris hotel refurbishments have pushed the city up the luxury rankings, allowing it to leapfrog London to the top spot among European cities. If you want to buy a holiday property and rent it out, the tourist market is buoyant enough to do so - but in Paris, you'll have to keep to tight rules if you want to AirBNB, and the company has to report your revenues to the tax office.
France has actually had to crack down on mortgage lending this year, as a highly competitive market has driven banks to relax their lending criteria. Lending has grown nearly 7% in 2019, and nearly a third of mortgages now are granted on terms easier than the Bank of France would like. The regulators have warned banks that the 33% affordability ratio needs to be observed, and that mortgages shouldn't be longer than 25 years.
Almost all mortgages in France are fixed term, and euro interest rates are low, making this a good time to secure finance for a property purchase.
Our advice for 2020
The French market is still looking good, supported by strong domestic demand and still affordable prices in many cities (though maybe not Paris). Don't be put off by strikes and the gilets jaunes - life is still good and the economy is growing. To make the best of the French market, follow these tips:
• Remember that with a few exceptions (tourist honeypots like ski resorts and beach towns) the French property market is focused on major cities. Smaller towns and rural properties won't give you such good returns on investment.
• There are some big infrastructure projects under way, like the extension of the RER network west of Paris, and new high speed Bordeaux to Paris link. Buying near one of these projects could deliver a kicker to capital appreciation as the new links make an impact.
• Watch out for markets that have been over-exploited for tax breaks such as student dormitories, loi Pinel or loi Dufflot (tax breaks for purchasing housing to rent out). A lot of new building in a small area of a city might mean developers have been over-egging things, and prices are sometimes inflated by the amount of the tax break!
• Remember that once you've made an offer at a given price, you're committed - as long as you can get the finance and there's no 'hidden vice' in the property. That works for as well as against you, since once your offer has been accepted, the buyer can't go back on his word.