Price negotiations – easier in the country, harder in the city

After months of decline, followed by a period of stability, the margin for price negotiations has now balanced out in France at 4.5%, according to the latest figures from the Orpi network.

This indicated that both buyers and sellers have adopted more neutral views on the asking prices of their properties. Previously, there were big gaps between the asking price and the selling price for resale properties across the country.

Prices in rural France can still pushed relatively hard by buyers. The figures show extremes of 11.5% in Boulogne-sur-Mer, a difference of 11.5% between the asking prices and the selling price. The same trend was seen in Canet-en-Roussillon – a 10.6% difference.

But in France’s big cities, the gap remains very low, with a maximum of 5.06% in Nice. In Paris, the difference stands at 2.69% on average, a mere 10,000 euros, on average, between the asking prices and the selling price.

It was at Lyon that negotiations seem to be the hardest. The trading margin here is 2%.


The Monaco circuit would be worth 3 billion if it were habitable

Widely regarded as the grandest prize in the Formula one, the Monaco Grand Prix does much to elevate the stature of this tiny independent microstate. But it’s not as if everyone didn’t know of Monaco already. Its belle epoque casino, ornate opera house and plethora of hotels boutiques, nightclubs and fine restaurants make this the playground for the ultra wealthy.

Real estate is priced with this wealthy audience in mind. A new study by the Savills international network show that the Monaco Grand Prix circuit would be worth €3bn if its surface was converted into living space.

According to calculations by Savills, this princely sum is achieved due to the length of the course (3337 meters) and the fact that is runs through the heart of Monte Carlo and La Condemns, which are among the most desirable areas.

The figures show that a good quality apartment of two bedrooms near the circuit is would cost €8.5 million, nine times more expensive than in Singapore, another town hosting a Grand automotive price and one that is not known for its low prices either.

Whilst these heady figures are sometimes hard to fathom, by looking at the price per square metre you can really see the extraordinary levels that prices ascend to here.

One square meter of ultra-luxury real estate in Monaco costs an eye-watering €90,900. At these altitudes, only Hong Kong is higher with an untouchable €109,800 per square metre. On average though, prices for ‘just’ prime property in Monaco cost €36,000 per square metre.


May 2016 – French Mortgage Transaction of the Month

Cash buyers use finance to optimise tax & repayment structures

With French mortgage rates so low, even those with enough cash to be able to buy outright are using finance to purchase their properties.

This month’s French mortgage transaction of the month is on a large apartment in the Three Valleys ski region. The clients opted for an interest only route on a loan amount of €800,000 for two reasons. Firstly they wanted to keep her net assets in France down. They were planning other investments in the country in the future and this would mean the €1.3m net asset level where French wealth tax would kick in would be reached fairly soon.

The second reason was to keep the monthly costs down to a minimum. On a repayment basis the monthly amount would have been around €6,000, compared to around €2,000 per month under an interest only structure.

This interest only mortgage was also divided in two, one half on a fixed rate the other on a variable. Whilst a fixed rate gave them security over their payments in the long term, they wanted to have the option to repay parts of the capital early, which under a fixed product means extra fees. They therefore took 50% of the mortgage under a variable product. Whilst there is less security over the rate long term, this allows for early repayments.


May 2016 – French Mortgage Transaction of the Month

Cash buyers use finance to optimise tax & repayment structures

With French mortgage rates so low, even those with enough cash to be able to buy outright are using finance to purchase their properties.

May’s French mortgage transaction of the month is on a large apartment in the Three Valleys ski region. The clients opted for an interest only route on a loan amount of €800,000 for two reasons. Firstly they wanted to keep their net assets in France down to a minimum. They were planning other investments in the country in the future and this would mean the €1.3m net asset level where French wealth tax would kick in would be reached fairly soon without careful planning.

The second reason was to keep the monthly costs down. On a repayment basis the monthly amount would have been around €6,000, compared to around €2,0000 per month under an interest only structure.

This interest only mortgage was also divided in two, one half on a fixed rate the other on a variable rate. Whilst a fixed rate gave them security over their payments in the long term, they wanted to have the option to repay parts of the capital early, which under a fixed product means extra fees. They therefore took 50% of the mortgage under a variable product. Whilst there is less security over the rate long term, this allows for early repayments.


Sales volumes and prices increase in France

For the first time since early 2012, the price of resale properties in France has risen. Meanwhile, the volume of transactions is increasing.

It is only a 0.5% increase but it is the first since the beginning of 2012. According to the index of the French Notaries & INSEE the price of ‘existing homes’ shows its first annual increase for more 4 years.

The increase is solely to due to that of houses (as opposed to apartments), whose prices appreciated 1.1% in the first quarter of 2016 year on year.

In Ile-de-France, the prices of existing homes had “recovered somewhat ” after a continuous period of decline since mid-2012, says the Chamber of Notaries of Paris-Ile-de-France. They rose by 0.2% from January to March 2016, year on year, after falling 0.9% in the fourth quarter and 1.6% in the third quarter.

810,000 sales in one year

Transaction volumes have continued to increase, with 810,000 sales recorded in France in the last 12 months to end-March, according to figures compiled by the notaries. Compared to the same period a year earlier, these volumes were up 17.2%, almost reaching the peak in 2012.


French parking spaces are becoming favoured by real estate investors

Escaping the constraints of the Alur law and in particular the harsh regulation of rents, this investment can provide a good return, provided you buy in the right place.

The heart of the eighteenth, nineteenth and twentieth districts of Paris parking spaces acquired for €25,000 allow the owner to collect a monthly rent of €110, representing a yield of 5% per year.

According notaries of Paris, the median price of a car parking space in Paris rose last year to €24,000 in the capital, €15,000 in the inner suburbs and €10,500 in the outer suburbs. In this niche market, the number of sales in the former in the Paris region is around 10,000 properties per year.

In Paris and in the provinces, the tram network, car-sharing schemes and presence of paid or free public parking can fluctuate the rental demand for privately owned parking spaces.

Even in the centre of the regional capitals, purchase prices and rents can flirt with those of Paris. Prices of €20,000 and €30,000 are often achieved in the seventh and nineteenth districts of Lyon, in the sixth and seventh arrondissements of Marseille and in the Saint-Michel district of Bordeaux.

With this specific type of real estate there is also a new strategy to due diligence. Once the right location has been chosen, you must ensure the ramp accessibility is of an appropriate gradient. Other tips include looking for lots with two side by side spaces, which are better than two in a row. Make sure the dimensions are good enough too: the ideal configuration being 2.5-3m wide by 5m in length. Beware of buildings from the 1980s that have very narrow spaces.


French Mortgage Watch April 2016

french private finance

French mortgage rates dive to new historic lows

This month mortgage rates in France have dropped to new historic lows offering increased long-term value.

Mortgage interest rates in France have now reached unprecedented levels, so much so that non-residents with good profiles can now access 20 year fixed rate mortgages from as little as 2.25%.

In terms of savings, compared to May 2014 when French 20-year fixed rate repayment mortgages were at 3.70%, rates have today decreased by 36%. In money terms, the total interest payable on a loan of €300,000 over 20 years has dropped from €117,571 to €72,822 a saving of €44,749, or €3,729 a year.

MW April Infographic
Each €100,000 borrowed currently costs €436 per month over 25 years, €518 per month over 20 years and €655 per month over 15 years. There has never been so much long term value in the French market which is why high-end buyers are returning in force.

 

img-john-Busby-French-private-finance

JOHN LUKE BUSBY
Private Clients Director

Why have rates dropped?

Mortgage rates in France reached their previous lows in early 2015, dropping to rates of 2.55% fixed for 20 years. Since then, after a small rate rise last summer, which caused international and domestic buyers to rush to the market to secure the best rate possible, the 3-month Euribor (Euro Interbank Offered Rate) has dropped further into negative territory, passing below -0.24% for the first time for over half a century. This is largely as a result of the European Central Banks decision to cut their base rate to 0.0% in March this year.

The Euribor is used by the vast majority of French banks as their reference index with a margin added on top to create mortgage rates. Current margins are in the region of 2% over the 3 month Euribor (which is now effectively at 0). The changes in the ECB rate generally drive changes to the Euribor.

Those with very good profiles who are buying in popular areas may also have the ability to access even better rates. In locations such as Paris or big resorts in the Alps it is even possible to access 20-year fixed repayment rates below 2.0% providing you can wait as the process can be slow.

French Mortgage Best Buys
Repayment
RateDurationLTVDescription
1.90%20 years80%Tracker mortgage 3m euribor +1.9%
2.25%15 years80%Rate fixed for the term
2.45%20 years80%Rate fixed for the term
2.65%25 years80%Rate capped + 1.5% for 10 years
2.75%20 years80%Rate fixed for the term
3.15%25 years85%Rate fixed for the term
Interest Only
2.75%14 years75%Tracker 3 month euribor +3.00%
2.80%25 years75%Variable tracker with cap at 4.30% fo 10 years
3.30%14 years75%Fixed rate

France in the Press

 Tourism to France increased in 2015 despite Paris terror attacks
The overall number of tourists visiting France in 2015 rose compared with the year before to reach an all-time high despite the two deadly attacks in Paris in January and November.
 Why Eurozone assets, not UK, are at biggest risk in a Brexit vote
New data highlights the most popular destinations booked by luxury travellers visiting France on a luxury budget.
 Holiday homes in the Alps: wake up in France and ski to Italy for lunch
The Evening Standard’s overseas property editor Cathy Hawker gives her opinion on a French resort with enough skiing to challenge the biggest resorts, but with much lower property prices.

 

French mortgage transaction of the month

Hedging against currency movements

Foreign expats living and working in the UK are also making the most of the current market in France, as is shown by this month’s transaction of the month.

The euro’s movement against both the pound and the dollar over the past few months has led many French property to utilise the long term rates as a hedge against further currency movements.

Whilst one of our current clients – who is buying an €800,000 apartment in Courchevel – has enough cash to finance the purchase outright, he does not want all the cash to be exposed to currency fluctuations. He chose a long term fixed rate mortgage on a term of 15 years for 75% of the property value thereby only exposing 25% to currency fluctuations.

From the blog

Rents in France rising for Euro 2016

Rental prices during the forthcoming Euro 2016 football competition are on the up across France. A study by the UFC-Que Choisir revealed that hoteliers have upped room rates by 80% during the competition.

Read more
First €5,000 fine for an illegal Paris sublet on Airbnb

For the first time a Parisian tenant who sublet their home over the Internet without permission of the owner has been sentenced by the Paris courts

Read more

Fixed repayment rates in France now available below 2.0%

For buyers with very good profiles buying in locations like Paris or big resorts in the Alps it is now possible to access 20-yr fixed rates below 2.0%.

Read more

 

Rate and indices

European Bank Base Rate and Euribor
The 3-month Euribor continues to drop, passing the -2.50% mark for the first time in over 50 years.  The vast majority of all French mortgages use the 3-month Euribor as their reference index with a margin added on top. Current margins are in the region of 2% over the 3 month Euribor.

mortgage rates in france

Fixed rate mortgages: The TEC 10 index

The Tec 10 has rebounded a little in the last few days, after sliding to its lowest point for over a year in March. The TEC 10 index in France gives an indication of how much the French government is charged to borrow money on a 10-year basis. In this way it is also an indicator of economic confidence and the perceived outlook for growth. Movements in the TEC 10 often produce changes in the available fixed rate mortgages in France. These changes are not instant and usually take a few weeks to come into effect.

french mortgage rates

Currency Rates vs Euro

Whilst the soap opera that is the Greek economy and its involvement in the single currency is giving most a dull headache, day-to-day investors continue to capitalise on the market as it is. More positive growth for the UK, expanding by 0.7% in Q2 gave further fuel to the fire, enabling sterling to scratch out some of the gains the euro made after the noise of agreement over the last few weeks. For the USD, it looks as though 2 rate rises are on the cards this year, with the first coming in September.

Currency

1 GBP€1.29
1 USD€0.88
1 AUD€0.67

French-Private-Finance-World-First


Rents in France rising for Euro 2016

Rental prices during the forthcoming Euro 2016 football competition are on the up across France. A study by the UFC-Que Choisir revealed that hoteliers have upped room rates by 80% during the competition.

It’s the same for house and apartment rentals too. A separate study by  seasonal rental company Likibu.com show that owners on Airbnb, HomeAway, Booking.com and their other competitors have increased their rental prices by an average of 54% in the cities hosting Euro 2016.

Yet it’s not in France’s capital that rates have soared the most. Figures from Likibu.com show that Lille has seen the biggest jump of 71% with Toulouse (+ 60%), Lyon (+ 53%) and Bordeaux (+ 52%) all taking their fair share.

Paris’ private rentals remain tempered (+ 12%) as well as Saint-Denis, near the Stade de France (+ 31%). But capital is expensive all year round and supply is plentiful, so no surprise here.

Demand outstrips supply

And if the rental price increases are remarkable, the increase in demand even more so. is particularly strong. Likibu figures highlight an occupancy rate of 88% so far for Euro 2016. On average that’s 10% higher than for equivalent periods outside of the competition. Demand in Bordeaux and Lyon has also jump massively, with their respective occupancy rates jumping from 73% to 90% and 72% to 90%.


Fixed repayment rates in France now available below 2.0%

Mortgage rates in France have just dropped to new all time lows – lows not seen since before World War Two.

Non resident buyers with good profiles can now access 20 year fixed rate mortgages from as little as 2.25% (fixed for the duration at 80% LTV).

For buyers with very good profiles buying in locations like Paris or big resorts in the Alps it is even possible to access 20-yr fixed rates below 2.0%.

Most non-resident clients with average profiles can expect to access rates of 2.45%.

To find our exactly what rate you can access, request a free decision in principle today.


First €5,000 fine for an illegal Paris sublet on Airbnb

The pressure is building on those who are renting their Paris homes on Airbnb illegally. After recent ‘sting’ operations across the city carried out to locate the owners illegally rented housing, the Paris authorities are now targeting the only thing that will curb the rise in illegal rentals –  the pockets of those concerned.

For the first time a Parisian tenant who sublet their home over the Internet without permission of the owner has been sentenced by the Paris courts.

In a decision dated April 6 – revealed by the website Legalis – the District Court of the 5th arrondissement of Paris sentenced the offenders to pay €5,000 to the owner. This does not include the €2,500 euros of charges ‘lawyers.

But with €22,000 in revenues, was a €5,000 fine enough?

Subletting is nothing new, cities across Europe are fighting to curb this problem. The rise of websites like Airbnb has only compounded the issue. In this case the court found that the tenant never informed the owner of what they were doing and therefore did not get his permission, as required under French law (and the law pretty much everywhere else across Europe).

The lessee, a Parisian stage director, sublet his apartment of 60 sqm with a terrace for  €700 per week, or €4,000 per month. He had been renting it for three years, which would have generated around €22,000 in rentals, according to the owner’s lawyer.

Subletting apartments is one thing, but for many owners of property in Paris this is proof that the authorities are getting serious with those stepping outside of the boundaries of the law.

Owners intending to let their own apartment in Paris on a website such as Airbnb need to gain permission from the local municipality. Most do not.

The French tax authorities are also becoming increasingly interested in this kind of undeclared income, while Parliament could potentially toughen controls too.

Tourism is the backbone of the city, so many hope that any new rules will be fair and reasonable for both owners but also hoteliers who are essentially losing income as a result of such ventures. Whatever happens, owners need to set their affairs in order or they will forever be looking over their shoulders.


April 2016 – French Mortgage Transaction of the Month

Hedging against currency movements

The euro’s movement against both the pound and the dollar over the past few months has led many French property to utilise the long term rates as a hedge against further currency movements.

Whilst one of our current clients – who is buying an €800,000 apartment in Courchevel – has enough cash to finance the purchase outright, he does not want all the cash to be exposed to currency fluctuations.

He chose a long term fixed rate mortgage on a term of 15 years for 75% of the property value thereby only exposing 25% to currency fluctuations.


Construction finally on the up in Paris

The construction industry in Paris can breathe a small sigh of relief. Nominations for new housing starts rose 5.5% in late February after 0.9% in late January.

Such a rise is being heralded as a sign that the sector has turned a corner from the slow growth spurned from the Eurozone sentiments of yesteryear.

In late January, the increase was only 0.9%, according to figures released by the Ministry of Housing. On their side the building permits granted for new homes posted a strong rebound of 18% year on year to 102,300 over the same three months.

This positive trend is being welcomed across the market, with multiple property apartment buildings representing 53% of the permits issued.


Foundation stone laid at new Longchamp racecourse

With trowel in hand, on Monday Edouard de Rothschild, President of ‘France Galop’, placed the first stone of the new Longchamp racecourse, which will now be closed until September 2017.

“Longchamp is the flagship racecourse gallop in France. Opened in 1857, it was renovated in 1966 but with time, it became essential especially to redo the stands,” he said.

“The idea is to make an aesthetic place where there will be various activities other than shopping,” he added. To attend this symbolic laying of the foundation stone of the stands that will be topped with a transparent panoramic glass building.

As you’d expect, a lot of detail has gone into the planning to minimize the impact on the environment. Recovered and recycled materials, including 30,000 m3 of concrete are being used throughout the structure.

The capacity will be greatly increased with the construction of five new buildings that will accommodate up to 70,000 people. Closed since 5 October for two years of work, the Longchamp racecourse auctioned various pieces of furniture and objects dating from 1960 to 2015, totaling some €137,000.

In 2011, the budget for rebuilding was estimated at about €80 million. Now the bill is punchier and is expected to exceed 130 million euros.


March 2016 – French Mortgage Transaction of the Month

Buyers choose 50/50 interest only & repayment mortgages

The lure of an interest only mortgage is normally the low monthly payments, but with long-term French mortgage rates so low, many clients are opting for a mixed interest only and repayment set up.

A 50/50 arrangement this way provides a combination of both low monthly payments and some relative long-term security provided by the 20-25 year fixed rate mortgage options.

As interest only loans in France often require foreign buyers to have net assets to the same value of the requested loan amount, buyers can sometimes fail when it comes to affordability. The 50/50 solution therefore provides them with a way of accessing the interest only market.


“Reinventing the Seine”…40 sites to be developed along the Seine

“River cafes” on the Seine in Paris, leisure areas facing the river in Rouen and student housing on the water in Le Havre (Seine-Maritime) are some of the projects that may arise from the programme called “Reinventing the Seine”.

Each project will be on brownfield plots (previously used for commercial opr industrial purposes) between Paris and Le Havre, via Rouen as part of a wider plan to create innovative new uses for the banks of the Seine.

The ideas have been inspired by “Reinventing Paris”, the campaign launched by the mayor of Paris to promote and gather innovative ways of creating new urban area with the future of 22 sites in the capital.

Anne Hidalgo (PS) mayor of Paris, Edouard Philippe (LR), deputy and Mayor of Le Havre, and Frédéric Sanchez (PS), President of the Metropolitan Rouen Normandie will soon unveil and identify the sites to be sold or leased to the winners after the contest in the spring of 2017.

The capital has selected twenty sites. Floating structures may be anchored at the foot of Notre Dame. Three “coffee-bridges” on the Seine might house bars, restaurants or hotels. Property governance Eau de Paris, an old water purification plant water of the Seine at Joinville-le-Pont (Val-de-Marne) could become an urban agriculture site.

A dozen sites were identified in Rouen and its surroundings, with mixed use projects potentially on the horizon. Nine sites have been identified in Havre, including three pools near the train station.