The French want to be homeowners, yet they cannot afford to be house prices are too high. Residential property prices have risen by almost 20% over the past two years, according to the Paris Notaries Chamber.
And because many people can’t afford their own home, half of the country’s total stock is in the leasing market, which has become very appealing for investors.
Prices rises have been driven by historically low interest rates, relaxed mortgage approval conditions and a lack of supply. These higher prices have forced buyers to migrate to the suburbs and provinces, especially in Paris.
But for every 280,000 new homes being built each year, 290,000 families require housing. And although the number of families that need housing is growing, the size of the families is shrinking. It is expected that the average French home
will house 2.1 persons in 2030, compared with 2.8 in 1978.
So, partly because of this shortage,
renting is cheaper in many areas of
France, especially Paris. Monthly rents
on new leases for property in Paris rose by 5% equivalent to €22 per m2. The average purchase price per m2 on a secondhand apartment in Paris in 2006 stood at €5,776 per m2. Rents in
secondary cities average €10 per m2.
The price disparity has prompted developers to capitalise on the growing demand for rented properties.
Property company Gecina, which owns 18,000 apartments, mostly in Paris, offers tenants competitive rental packages that include flat maintenance, refurbishment, and large-scale renovation. These flats can then be relet easily. Nearly 40% of the company’s rental income comes from residential assets.
But two laws have also created hurdles for investors. Last year’s “Robien recentré” law introduced a ceiling on expected rents. A year earlier, the “Aurillac legislative bill” put an end to block-by-block sales, known as découpe. Sellers must now ensure buyers of whole apartment blocks grant full six-year leases to existing tenants.
“The owner of a building must now tell its tenants about any projects it has planned,” said Marie-José Lopes, head of residential research at CB Richard Ellis in Paris. “Should the tenants wish to buy, the owner must propose an advantageous price.”
But some companies still see plenty of opportunities. ING REIM says that France, along with Germany, is one of the best investment-grade markets in Europe. It launched a €1bn infrastructure French residential fund, which includes a €150m seed portfolio of 75 apartment buildings in Paris, Marseilles and La Seyne sur Mer.
The mature market of Paris remains one of ING’s main targets, home to 18% of the total country’s housing stock.
“Housing is an excellent diversifier vis-à-vis commercial real estate, and in selected countries, total returns of residential real estate investments show little or even negative correlation with economic growth,” says Annabelle Cavin-Derlincourt, investment analyst at ING in Paris.
Other companies are looking to float their residential operations as separate businesses. Gecina recently said it would spin off its residential operations in a new company, Resico, to be floated on the Paris stock exchange this year. AXA REIM has also announced plans to launch Dolmea Real Estate with Nexity and list the vehicle as a SIIC. Dolmea will focus on modern residential real estate and start with a €737.7m property portfolio.
But a few concerns overshadow the French residential market. Consumer confidence remains low though it has improved somewhat and unemployment is relatively high at 8.7%. And although mortgages have been extended to 25 years from 15 years and people can borrow 34% more, the French are getting more into debt, with 64% of disposable income now spent on household debt. No wonder housing is expected to play an important role in the upcoming elections.
