It is now well known in real estate circles that the economic crisis in the United States and Europe has depressed prices and created fresh opportunities for the motivated buyer. Smart investors are on the lookout for such opportunities as they seek alternatives to equity markets, focus on euro-based assets as a hedge against the dollar, and partially offset acquisition costs with rental income generated by seasonal or long-term rentals.
Real estate investment opportunities are especially advantageous in France, where national stability, clear tax policies, the absence of government corruption and a rich cultural tradition offer a favorable lifestyle and as well as a sound financial investment.
Prospective buyers of French property are also aided by the fact that mortgage rates have declined recently in France as the European Central Bank has slashed interest rates.
Market trends in 2009
"You need a crystal ball to predict the future," said Alexandre Moisset, chief of the agency Groupe Mobilis, which has three offices in Paris. "But we are definitely in a situation where there are motivated sellers." Some sellers, he added, are aware that buyers currently have the upper hand and are withholding their properties from the market as they "wait out the turbulence."
Despite their understandable uncertainty about the general future of French real estate, French agents are clear on how they expect sales of upscale properties will fare in 2009.
Different trends for normal and premium properties
The opportunities created by the current economic malaise do not pertain in equal measure to all residential real estate for sale in France.
There are two distinct real estate markets in France: low and mid-level properties, and premium properties.
The former are ordinary residential properties in the less sought-after parts of Paris and the less touristic regions of rural France. Typically these properties are sought by French buyers who relocate for job or family reasons.
Prices for these lower and mid-level properties will probably continue to weaken in the near future, most agents say. www.explorimmo.com, a website that tracks French real estate developments, notes that prices for ordinary properties are already depressed and could fall an additional 10-15% in 2009.
No such predictions are being made for premium properties in 2009.
Premium properties
By premium properties we mean very upscale Paris apartments and country properties in sought-after regions that attract foreign buyers. Typically, buyers of premium properties are in search of a secondary residence in France. At the same time, however, they want to diversify their investment portfolio with an asset that will show an acceptable return on investment.
The properties that attract such buyers are exemplified by smartly renovated apartments (or apartments with classic architectural features in need of renovation) in Paris' most prestigious arrondissements, tastefully restored farmhouses in Provence, chalets in Alpine ski areas, and luxury villas on the Mediterranean coast between Saint-Tropez and Monaco.
It is with this upscale category of property - the upper-tier homes generally sought after by British, American, Russian, Canadian, Italian and Scandinavian buyers - that we are concerned here.
In search of the optimum moment
Two major questions emerge for the foreign buyer of a luxury French property:
- First, is it really a buyer's market now for premium properties, or is that a myth perpetrated by the gloom-and-doom reports in the media?
- If it is a buyer's market, when will be the optimum time to buy? That is, are market conditions still exerting downward pressure on prices? Instead of falling further, when will prices will stabilize, or even start to rise?
The dollar-based buyer
Answers to these questions are even more crucial for the American buyer in light of the dollar's substantial improvement against the euro in recent months.
Click here for the latest currency conversion rates.
Click here for our Strategies for Leveraging a Stronger Dollar Into Greater Purchasing Power and Lower Acquisition Fees.
The experts look ahead to 2009
For answers, we turned to our real estate associates in France, calling on agency chiefs, notaires, lawyers and renovation contractors for their observations on what is happening - and what they predict will happen in 2009 - in the market for luxury French properties.
Note: Just France Sales does not give financial advice. Check with an accountant or tax lawyer experienced in French real estate before investing. Feel free to call on us names and contact information for experts in this field.
What the experts say
"There's no question about it - demand is down," said Thierry Journiac, principal of Terra Cognita, a Geneva-based agency that specializes in the sale of classic French châteaux. That sentiment was echoed by Caroline Plassat of Agence Varenne in Paris. The end of 2008 was slow, she said, but "so far in 2009 we're seeing an increase in buyers."
All the agents we spoke with say that prices have definitely leveled off sharply in recent months, even for better properties. And what direction do they expect prices to go in 2009?
"Prices [for luxury properties] are flat now, stabilized," Journiac said. "They're not going down any more.
Plassat and Moisset of Groupe Mobilis agree:
"Prices are off. "Fifteen and sixteen thousand euros a square meter - these prices are gone for now [for most properties]," Plassat said. But prices are "not falling 25 percent or anything like that," she added.
"There will be no vertiginous drop in prices [for luxury properties]," Moisset told us. "The drop has happened. Prices are stable now."
On the other hand, super-premium properties - for example, the impeccable three-bedroom Paris apartment on an upper floor of a Haussmannian-style building that has an elevator and is situated on a picturesque street in a prime arrondissement - are still holding their value, and are selling well.
"The mini-markets" - Plassat's term for super-premium properties - "are not affected," she said. "Demand remains high for these properties."
The consensus
In sum, here's what the experts we spoke with predicted for 2009:
- Asking prices for premium properties in Paris stabilized in the closing months of 2008 and show no indication of falling substantially in 2009.
- Prices for premium properties in Provence, the Côte d'Azur and other sought-after regions are soft, but unlikely to show any dramatic downturn in 2009.
- While top-drawer properties are not selling at fire-sale prices, currently it is definitely a buyer's market for premium properties, and most likely will remain so during the first six months of 2009.
- Despite the depressed market, premium properties in all sectors are selling, though less rapidly.
- Some owners of prime properties are selling at substantially reduced prices, while others are simply holding their price and waiting for the market to rebound.
- The price at which a property owner is willing to sell involves a variety of factors, psychological as well as financial. The seller's break point can never be known until the buyer makes a formal offer.
The buyer's strategy in today's premium property market
In today's market, the buyer who has found a desirable property and seriously wants to purchase it will make a bold offer to test the seller's resolve. The offer will be a substantial percentage off the asking price, but not so low that the seller is offended or thinks the buyer is just playing games.
Increasingly, buyers are being pleasantly surprised to see such offers accepted.
"If you like the property, why wait?" said Journiac. "Make an offer and see if you can steal it. Sometimes it works. You never know until you ask."
"Sellers are definitely very open to negotiation now," according to Moisset. Until recently it has been considered risky to make an offer greater than three percent under asking price. "Now owners are expecting reductions up to five percent or more," Moisset said.
On the other hand, said Plassat, "offers that are way under" - like 25 percent off the asking price - "are not being accepted."
Sellers in la-la land
The experts pointed to the fact that some sellers are still living in a "dream world," setting prices that at levels that would have been reasonable in the boom market of 2001-2008, but which are clearly out of line in today's market.
"The owner of a Paris apartment that's in a great area but is in poor condition and looks out on a courtyard - and he thinks he's going to get 16,000 euros a square meter. That's over. Fini, tout ça," Journiac said.
The myth of fire-sale prices
But the experts also took aim at the belief, prevalent among some buyers just getting acquainted with the French market, that owners of premium properties will panic and start slashing prices in 2009.
French agents point out that this belief, however comforting to buyers, is largely unfounded, for three reasons. First, sellers of premium properties are generally people of means who have no need of immediate cash. Also, many premium properties are often secondary homes, and the seller is generally not compelled to sell in order to have somewhere to live. Finally, if the property doesn't sell, many owners can continue to do what they have done for years - hold on and generate income from seasonal or long-term rentals.
Reflecting this attitude, the owner of a beautifully renovated mas for sale in the Luberon recently declined Just France Sales' suggestion to lower the price slightly in order to tantalize an interested buyer. "We don't need to sell," she said. "This financial crisis will pass, and we're just going to wait it out."
Likewise, the American owners of a luxury apartment in Paris prized St.-Germain quartier recently pulled their property off the sales market until the fall of 2009 so they could continue to accept rentals, which generate more than € 50,000 annually.
Mortgage rates
Buyers with good credit who want to finance part of their purchase got good news in early 2009, when lenders started posting average interest rates a full half point below market rates in late 2008. According to the www.explorimmo.com, which tracks real estate trends in France, the average rate has tumbled to 5.0% for a 15-year loan, and 5.15% for a 20-year term. Credit standards have tightened some, with lenders generally seeking a down payment in excess of 20%.
Experts predict that lower mortgage rates should boost real estate sales in France. According to French sources quoted on www.nuwireinvestor.com, a website devoted to international real estate trends, the first six months of 2009 "should remain a buyer's market," while prices can be expected to rise in the latter half of the year.
Summing up
2009 will be a year of opportunities in French real estate for the smart buyer. In all likelihood buyers will have the upper hand at least until the summer of 2009. Lower mortgage rates will bring more buyers into the market. Some sellers of premium properties will surprise buyers and agents by accepting low offers, while others will opt to wait until the market returns to its traditional vitality, where annual appreciation in the 5-15% range is not uncommon. The smart buyer will diligently seek out properties while the market remains in the buyer's favor, and make a low but not unreasonable offer in hopes of finding an exceptional bargain.
Again we are reminded of Alexandre Moisset and his crystal ball, where he warns that nothing can be predicted with certainty. But wise buyers will watch market trends closely, and will bear in mind that the window of opportunity that exists now may begin to close in the summer or fall of 2009.
