Paris 2024 Olympics Fuel Speculation of a Property Bubble Amidst Falling Prices.

Amidst a backdrop of declining property prices in the City of Light, a curious phenomenon has emerged, suggesting that the Parisian real estate market may be defying expectations. While the housing sector in Paris has experienced a modest dip in prices, it has managed to weather the storm better than many other metropolitan areas. This resilience can be attributed in part to what experts have coined the “Olympic effect,” a phenomenon that appears to be persuading property owners to bide their time, anticipating future windfalls tied to the upcoming 2024 Olympic Games.

Since the inception of 2022, as lending rates surged from a paltry 1% to a more formidable 4%, the borrowing capacity of prospective buyers has plummeted by a staggering 25%. Alarming as this may seem, the situation shows no signs of abating, with interest rates on a trajectory towards the ominous 5% mark. Yet, curiously, the asking prices for properties do not seem to align with the dwindling budgets of potential buyers. Some fortunate individuals can afford to make cash purchases, while others are reluctant to relinquish their current properties, tethered to low-rate loans averaging between 1% and 2%. This reluctance stems from the fact that they would be burdened with debt rates of 4% or higher should they embark on new real estate ventures, barring unforeseen circumstances such as separations or childbirth.

Enter Airbnb, an influential player in this narrative. The short-term rental platform has carved out a substantial presence in the Parisian real estate landscape, with earnings equivalent to a staggering 4.2% of property values. According to experts at Masteos, a specialized turnkey real estate firm, the scarcity of available properties on the market, which has contributed to the slowing decline in property prices, can be attributed in part to the forthcoming 2024 Olympic Games slated for July 26 to August 11. Parisians are seizing the opportunity to capitalize on this momentous event, envisioning a lucrative stream of seasonal rental income and an augmented property value before deciding to sell.

Deloitte’s research, unveiled in April, concerning the economic ramifications of the Olympics on Airbnb, estimates a whopping 130,000 hosts preparing to accommodate a staggering 560,000 tourists during this period. Among this cohort are the savvy homeowners, patiently awaiting their moment to list their properties for sale come September 2024. Airbnb data reveals that the cost of a single night’s accommodation during the Olympic competition skyrockets to 3.5 times the usual rate in the capital. Thierry Vignal, the head of Masteos, points out that “if you multiply that by the number of competition days and relate it to the price of real estate, renting out your apartment during the Games could yield a return equivalent to 4.2% of Paris’s average accommodation price.” He recounts instances where customers preferred to postpone property sales, lured by the allure of potential Olympic profits.

In the neighboring cities of Marseille and Lille, also slated to host Olympic competitions, the percentage of “Airbnb revenue” in relation to property value registers at slightly lower figures, hovering around 2.4% and 1.4%, respectively. It’s a tantalizing proposition that explains why some property owners are opting to delay their sales by a few months.

Yet, the ultimate gamble lies in the belief in an “Olympic Games effect” on property prices. Throughout history, the world’s most prominent sporting event has wielded a potent influence on real estate markets. As per the Masteos study, dating back to the 2000 Olympics in Sydney, property values have consistently surged by an average of 17% between the year preceding the event and the subsequent year. Thierry Vignal underscores this trend by noting, “For instance, Rio in 2016 was trapped in a bear market for five years, and it was abruptly halted by the Olympic Games. In London, property prices also ascended by a remarkable 24% over two years during the 2012 Olympic Games.”

However, while Parisians cling to hopes of a resurgent market, experts remain cautious. The current unfavorable economic context, they argue, may outweigh any potential Olympic-induced resurgence. As Vignal concludes, “I don’t think it will be founded this time because the context is too unfavorable and will outweigh the Olympic Games effect.”

Moreover, the reluctance of property sellers to make their move could have unintended consequences. Once the Olympic deadline passes, a deluge of properties may flood the market, as predicted by the head of Masteos: “With this influx of supply expected at the onset of the 2024 school year, the downturn could gather pace.” The outcome of this real estate gamble remains uncertain, leaving Parisians and real estate aficionados alike on the edge of their seats, contemplating the fate of their beloved city’s property market.

Source: https://www.leparisien.fr