An ideal market?

• Indexes

  • With volumes close to pre-crisis peaks, prices remaining essentially stable and interest rates at their lowest, all the ingredients are present to encourage sellers and buyers to return to the market.

  • The combination of these factors is favourable to the implementation of projects and restores confidence and vitality to an entire sector.
    The French National Institute of Statistics & Economic Studies' (INSEE) index of households' confidence shows this renewal of consumer optimism. With a score of 97, French households appear to be on the verge of becoming "optimistic" once again. It is true that the savings realised by the fall in interest rates has enabled some people to buy up to one additional room for the same budget and that the renewed fluidity of volumes gives others the desire to take action.

• Volumes close to peaks

  • In older properties, the market has returned to the number of annual transactions seen before the 2008-2009 crisis (i.e., 830,000 at the end of April 2016). The annual rise in volumes has reached 19%. The statistics on pre-contracts show that the trend is continuing and could hold at these high levels. The widespread fall in prices from 2012 to 2015 (except for a few regional cit-ies with property markets characterised by high demand and limited supply, such as Bordeaux and Lyon) minimises the risk of a property crisis.

  • In new construction, the first part of this year was marked by this same situation. The increase in the number of properties approved for construction (+7.4% compared to the period April 2014–April 2015) and the fall in the average time to start construction of houses and apartments confirms the outlook for an active market over the long-term. Finally, the decrease in sales times should be noted.

  • Moreover, an increase in short-term interest rates is unlikely.

  • Crédit Foncier estimates that between 2014 and 2016, the fall in interest rates combined with the fall in prices has given potential buyers 8.5% more purchasing power, without measuring the impact of appeals against building permits.

  • If prices should rise over the coming months, this would have very little impact provided the increase remains modest. This would then amount to a zero sum game, where the price increase is offset by the fall in interest rates. This is what we saw over the last quarter for some transactions.

  • These cumulative effects of low interest rates, henceforth attractive prices and high transaction volumes should generally result in a rebalancing of supply and demand and therefore the seller/buyer relationship.

• Caution about a flash in the pan

  • The fall in mortgage rates alone cannot perma-nently and solidly sustain the upturn in volumes.
    After an increase in the order of 25% in mort-gage volumes between the low point in 2014 and 2015, mortgage volumes have increased by just 3.2% in 2016, suggesting an increase of about 5% over the entire year (source Crédit Logement/CSA).

  • According to the Banque de France⁽¹⁾, 85% of new mortgages are used to acquire a principal residence.

  • The new interest-free loan (for purchases of older properties with renovation work repre-senting at least 25% of the price) has been an unquestionable success. The interest-free loan (PTZ) for older properties, for the period January to May 2016, represents approximately 20% of interest-free loans distributed (vs. 3% in the previous system).

  • It should not be forgotten that the high volumes seen to date are also the result of a catch-up effect, the consequence of 3 years of pronounced waiting.

  • Consequently, growth relays will need to be found if we want to maintain this level of transactions.
    Today we are in a users' market, since investors have not yet started buying older properties again. A situation that is not helped by the threat of rent controls!

  • The challenge could be to get investors to return to a market that could offer them a yield and legal security. This involves rebalancing rela-tionships between owners and tenants. Since excessive protection of tenants literally freezes a large part of the rental stock.

  • We must also take care that the increased vol-umes do not result in a major increase in prices, as this would cancel out the increased volumes.

  • Since scarcity is the source of increased prices, we have to ensure the political means are fos-tered to free up land and enable the construction of new properties.

(1) Stat Info report of 6 June 2016

• What about Brexit?

  • The United Kingdom's decision could have a positive impact on the other European property markets, especially with regards to offices, but it is far from certain that the French market will reap the benefits. No windfall effect can be anticipated at this stage.

  • At the most, in the housing market one can expect that British people will defer investments in France and some of those already living in France will sell off earlier than planned (phenomenon already seen during the 2008-2009 crisis).