A new political regime, historically low interest rates and building consumer confidence are set to have a positive effect on the prime residential property market in Paris, new research suggests.
The city saw prime market prices rise by 4.3% in 2016 and that pace of price growth has picked up in 2017, with a rise of 7% in the last 12 months, according to the latest analysis from real estate firm Savills.
‘Stock levels have been starting to contract over the last year which will continue to push prices higher in the coming months,’ said Hugues de La Morandière, partner of Savills residential in Paris.
Across the whole market, prices stood at €8,430 per square meter in February 2017 and figures from Notaires suggest a price of €8,700 in June 2017, meaning prices in the prime sector are up from a 2014 low, averaging between €12,000 and €18,000 per square meter.
Exceptional properties in the city are being sold for between €20,000 and €30,000 per square meter and values in the 1st, 4th and 5th arrondissements have already exceeded their 2012 peak.
‘This recovery is being driven by domestic demand. Activity has been buoyed by record low interest rates and more-competitive asking prices. This year, the prospect of interest rate rises has encouraged more buyers to close deals and stock levels have fallen,’ said Paul Tostevin, associate director, Savills World Research.
Overseas buyers accounted for just 9% of the prime market in 2016, but we expect them to grow in importance. The new Government will bring clarity on legislation and a period of relative stability. This could encourage buyers who have been waiting on the side lines to act, including expat French citizens looking to return home,’ he added.
The prime market in Paris is characterised by apartments of the Haussmann era, with limited new development. Consequently, modern buildings with high levels of services and amenities, a type favoured by wealthy international buyers, are relatively rare in Paris.
The report points out that pied-á-terres, larger apartments and mansions are favoured by both French and international high net worth individuals while family apartments are sold mainly to the French.
Overseas buyers accounted for 9% of prime property sales in Paris sales in 2016, down from a peak of 14% in 2008. The report suggests that the recent terror attacks have led some international buyers to postpone purchasing plans. Americans, who benefit from a strong dollar, dropped from 21% of foreign buyers in 2015 to 16% in 2016.
Other Europeans are the largest single foreign buyer group at 39%, led by the British, Swiss and Belgians. Buyers from the Middle East and Asia are present in small numbers. The Chinese, a huge tourist group, have yet to make their mark as property buyers.
The report suggests that the perception of France as a high tax location has weighed on the prime markets but when compared with buying, holding and selling costs in major world cities suggests this is not the case.
The report points out that property taxes and fees are, in fact, average by global standards. Purchase costs in particular, are lower than many rival cities. Hong Kong, Vancouver and Singapore all levy an additional 15% stamp duty on foreign buyers, on top of existing stamp duties. Beyond property, France’s much quoted 75% income tax rate is not payable by those whose source of income is from another country.
‘The election of Emmanuel Macron as the new French president should mean a period of stability for the Parisian residential market. Reduced political risk in Europe coupled with pro-business reforms could result in renewed economic growth and stimulate the residential markets,’ Tostevin explained.
‘The abolition of Wealth Tax (ISF) will improve France’s attractiveness to HNWIs, although taxation on real estate at the current ISF thresholds are set continue,’ he added.
