Expert Insight, Breaking News, and Insider Stories on Real Estate in Paris
Paris Real Estate 2019: What’s ahead?
Fueled by borrowing rates that are still at their lowest, with banks easing their credit terms and increasingly demanding less and less, the existing real estate market continues to operate at full capacity. Will this good health last? And if so, for how long?
Paris Property Group has compiled findings from various French real estate news sources to provide an overview of Paris real estate in 2019, reviewing the various indicators most likely to influence the market, as well as presenting overall perceptions by real estate agents.
2018 Recap: Prices up by 1.1% since the beginning of the year
According to MeilleursAgents, the first eight months of 2018 were a continuation of 2016 and 2017 at the national level: steady and measured price increases (+1.1% since the beginning of the year) with stable and high sales volumes in a fluid market. According to the feedback from the platform’s 11,000 real estate partner agencies, first-time buyers still represent on average one-third of buyers (32%) with a decline in the share of rental investors (14%) in favor of resale purchases (42% of second-time buyers).
Taxes 2019: the year of prélèvement à la source
The hot-button issue heading into the new year: le prélèvement à la source. Currently, income tax in France is not deducted directly from an employee’s wage, meaning that all resident taxpayers have to complete an annual tax return and have the money available to pay their eventual tax bill. As of January 1st, however, taxes will be immediately deducted from their income: the administration will transmit to companies the individual tax rate to retain on their employees’ paychecks. Landlords will pay their property taxes directly to tax authorities in installments. Loi Pinel-type tax benefits will be paid by the administration in two installments: 60% in January and 40% in September 2019.
According to pap.fr, prélèvement à la source should not affect those looking to borrow money from the bank, as debt capacity will always be calculated on the net salary before taxes, as it is today.
However, some experts fear another consequence of this tax new regulation: the feeling of impoverishment among taxpayers, who will see less on their pay slips than they are accustomed to. The reaction might then be a reduction of certain expenses, a trend that will affect consumption and investment, potentially in real estate. Residential real estate professionals are already preparing for a slowdown in their activity, though confident that this perception will fade.
With increased investment in Paris due to Brexit, and with the introduction of infrastructural changes in preparation for the 2024 Olympic Games, the creation of new jobs in the city will be a benefit to unemployment rates in the long term. Current rates in the medium term, though, are still rather encouraging, with a positive downward trend that could lead to the development of demand in the real estate market. Though Paris’ market is more balanced than it’s been since 2012, the number of buyers still remains higher than the number of sellers. This could increase with unemployment declining. Of course, not all cities are in the same boat, with significant differences noted in Rennes (unemployment rate of 6.8%) and Marseille (11.8%).
Real Estate Tension Indicator
On a related note, the Indicateur de Tension Immobilière or ITI, (Real Estate Tension Indicator), which measures the balance between demand and supply in a given geographical area and at a given time, currently shows a slight imbalance of power favoring sellers, thus contributing to price increases in a context of low interest rates. However, MeilleursAgents notes that the evolution of the ITI in various zones suggests a more balanced rapport between buyers and sellers and therefore, in the long term (6 to 12 months), a less dynamic evolution of prices.
The median selling time measured by MeilleursAgents accounts for the time it takes to market and sell property and is a good indicator of the fluidity of the market. Average selling time continues to decline in all French cities except Bordeaux and Strasbourg. The urban market is therefore generally fluid (80 days on average) or even very fluid in France’s largest cities (39 days in Paris or 45 days in Lyon).
La loi ELAN
MeilleursAgents estimates that la loi ELAN, which aims to increase subsidized housing sales and which will be voted by Parliament soon, will have no real impact on the pre-existing housing market. In fact, surveys regularly conducted by those real estate agents partnered with the platform, currently show a decrease in the number of buyers and an increase in the number of official sales listings.
Public subsidies and purchasing power
In 2019, a 0.3% increase in the value of most social benefits, an increase much lower than that of inflation, is expected to save €3.5 billion. However, the abolition of certain public subsidies that favor modest first-time homebuyers, such as l’APL accession, as well as the tightening of eligibility conditions for interest-free loans, has contributed to the worsening of solvency for these buyers.
According to meilleurtaux.com, the loss of purchasing power thus induced as property prices have exploded in many cities, like Lyon, could create tensions and have a significant impact on the 2019 real estate market in terms of the acquisition of new construction and pre-existing housing alike.
Low interest rates
To enable first-time buyers to buy, however, banks are offering loans at increasingly longer terms. According to the Observatory Crédit Logement (CSA), 37.5% of real estate loans granted to first-time homebuyers in June 2018 were for terms of 25 to 30 years. A length of 20 years has now almost become the average (instead of 15 years in the early 2000s). One bank even offers mortgage loans over 35 years.
This is possible at the moment because interest rates are very low. The cost of credit is cheaper and buyers can borrow more and for longer.
However, L’autorité de contrôle prudentiel et de résolution, or ACPR, the authority responsible for the licensing and supervision of banking, insurance and intermediary institutions, showed in a study published in September that mortgage lending fell in early 2018 after rising in 2017. This study also showed that the average amount of real estate loans in 2017 was 165,448 euros (as opposed to 110,098 in 2009).
Although the highly speculated increases in borrowing rates still haven’t made their way onto the scene, the evolution of the ECB’s monetary policy, with a possible increase in key interest rates by the summer of 2019, is a negative factor to be taken into account within the year.
Other law changes
Le PTZ will be extended for two more years
This loan at 0% interest rate (prêt à taux zéro pour-cent), is reserved for first-time buyers until December 31st, 2021, in so-called tense sectors (zones A bis, A and B1). In these areas, it is reserved for new-builds and can finance up to 40% of the cost of the project. In zones B2 and C, the PTZ ends on December 31st, 2019. It accounts for 20% of the project amount for new-builds and 40% for renovations of pre-existing homes.
L’éco-PTZ, which makes it possible to finance energy-saving renovations in the form of an interest-free loan over 10 or 15 years, has been extended until December 31st, 2021, with a newer, more simplified version of the loan entering into force on March 1st, 2019. Regulations delineating the number of works and the type of work you have to do in order to obtain the loan, considered too complex by private individuals and professionals, will be changed. The new version will finance up to €30,000, regardless of income, within a single borrowing period of 15 years, regardless of the number of works financed. For Sylvain Lefevre, this measure is a step in the right direction: “Simplifying the process of accessing the éco-PTZ should enable households to reduce significant energy expenditures in their monthly budget”.
La loi Pinel
This tax advantage reserved for new home investors has been extended until December 31st, 2021, but only in zones A bis, A and B1. To benefit from it in zones B2 and C, the building permit must have been submitted before January 1st, 2018, and the deed of sale must be signed before January 1st, 2019. In short, there are only a few weeks left to invest in Pinel in zones B2 and C.
Real estate capital gains for non-residents
An amendment approved by the Assembly aims to allow taxpayers who put their main residence up for sale because of their departure from France to benefit from an exemption on the capital gain of its sale, “provided that the latter occurs within a normal period, at the latest at the end of the year following the departure abroad, and that the building is vacant during this period”. If the measure is adopted when the 2019 finance bill is examined, it will apply to transfers made on or after January 1st, 2019.
In terms of numbers, it seems that the housing market will maintain its current momentum until the summer of 2019 before a cycle change might occur. Under these conditions, prices in France should increase by an average of +1.5% by the summer of 2019 before a moderate decline in the autumn of 2019.
Interesting to note, as well: real estate remains the preferred investment choice of the French far ahead of life insurance, Livret A savings, or financial markets. In a survey by Crédit Foncier, 2600 people were asked what they would do with hypothetical lottery earnings. 68% answered that they would invest in property. The idea here is, above all, to build up an estate, or to procure additional income through rental investment, as 92% of the respondents said they would invest in an apartment.
Image: Sur les toits de Paris, by Arthur Weidmann, Wikimedia Commons