Paris Real Estate Market May See History Repeat Itself
History may be repeating itself in the Paris real estate market today. At the peak of the market turmoil in 2008-2009, following the global credit crunch, sellers and buyers took a wait-and-see attitude, hoping that prices would see a marked decline.
That didn’t happen, and buyers came back in droves: the dearth of good apartments to buy created a rush on available properties. After a slight decline in prices in early 2009, 2010 saw residential real estate prices soar by 18-20% in every arrondissement in Paris. The market today is showing the same characteristics.
Market uncertainty is typical in an election year. In the 1st quarter of 2012 there were 1/3 fewer transactions compared to the 1st quarter 2011. The Euro crisis, new taxation laws in France and talk of cracking down on short-term rentals has added further uncertainty in the most popular arrondissements. Potential buyers are still digesting recent news, and their increasing hesitation has made some home-owners nervous. Good properties are lingering longer than usual, and new listings are appearing just as we approach the summer break,which is similarly unusual. For some buyers, this has created good opportunities to negotiate.
Quality apartments are not flying off the shelves at the moment, and buyers are able to negotiate effectively for the first time in years. Despite these indicators of a slowing market, our prediction is that there may be a slight dip of prices between now and the beginning of September, but that the market will quickly recover and remain solid.
Hollande’s announced plans to raise taxes on high-earning French residents is rumored to have spurred many to consider relocating outside of France. We don’t envision a big exodus that will create a glut of properties on the market. Foreign investors account for much of the market for high-end properties in the central arrondissements in Paris, and they are not impacted by income tax in France. In recent weeks there have been large purchases of Paris real estate by the Sovereign Wealth Fund of Norway (one of the largest investment funds in the world) and the government of Qatar, signaling the continued interest of sophisticated foreign institutional investors in Paris property.
Paris is a market of steady, consistent growth, not a speculative market for quick flips, both for commercial and residential real estate. The knowledgeable Paris investor is looking for an investment with solid but not exponential returns, and capital growth that may fluctuate year to year but averages out to about 10% a year over the last 35 years. For many international investors, the added ingredient is love: a love for the city and the desire to own property here.
Other recent news signaling market strength:
- Historical studies show that Hollande’s rent control proposals are likely to drives real estate prices up.
- A study by the Urban Land Institute says Paris is a good investment, and is ranked best by investors.
- Ernst and Young’s real estate investment report indicates that 86% of investors think Paris real estate prices will increase.
In the end, what remains true is that there is a finite amount of property in historic central Paris. One of the top tourist destinations in the world, it will always be counted among the elite capitals of the world for travel and commerce, as well as a refuge for the wealthy. And it is these fundamental facts that guarantee a very long wait those who sit on the sidelines hoping for bargain prices.