Until very recently, all indicators for the real estate market in Paris pointed towards increasing prices per square meter to as much as 8% in 2020. Supply was scarce and declined rather than increased, while demand continued to be strong. The number of transactions gradually decreased because there was little to buy. But how does the Corona crisis affect the Paris residential property market, that is, the housing and apartment market? We, ParisScarabee Househunters, nor many other connoisseurs of the Paris housing market know exactly what will happen. However, we’d like to share some of our considerations with you.
Current situation (Q1 2021): slight increase in prices
After two strict lock-downs in which real-estate agents had to refrain to on-line viewings and contacts only, and a brief period in the summer when free movement was possible, the year 2020 in Paris nevertheless ended with an average price increase for residential real estate of 1.8%. That is less than in 2019, when the price increase was still 8%. At the start of 2021, although there is an 18.00 (or 6PM) curfew in place, physical viewings of homes and real estate transactions, for example at the notary, are possible. So despite Corona, the Parisian real estate market is definitely alive and kicking.
Developments on the demand side are diverse
We believe that the underlying trends in the Paris housing market remain the same. We expect the housing shortage in Paris to continue to be great. The consequences of Brexit are still unclear. Businesses and residents from the UK, French and expatriates, will move to Paris, resulting in an increased demand for housing and apartments.
On the other hand, potential buyers are likely to be more cautious with a purchase now that the economic outlook is generally less rosy. It can also become more difficult to borrow money for a mortgage. And more expensive. Interest rates on mortgage loans were historically low and banks were very willing to lend on favorable terms. This willingness is likely to decline as banks need to maintain their buffers. They will estimate the risk of payment problems from their customers higher than before the Corona crisis. This can have a negative effect on the demand side.
Residential real estate a “safer haven”
Based on the experience during the 2008-2013 financial crisis, we expect the value of residential real estate in Paris to be less volatile than many other types of investments. That means that the value of houses apartments in Paris varies less extremely. The loss of value will therefore be less than in other investment categories such as equities, bonds and commercial real estate. Perhaps there could be a downward impact on rents if tenants lose their income. For example, because they lose their job. But there will still be a demand for living space. People who are unable or unwilling to buy must rent. In our view, residential real estate in Paris is therefore still a relatively safe investment category. Especially if it concerns a first or second home.
Our medium-term outlook: Demand will stay bigger than the offer
Of course, there is also a life “AFTER” the Corona crisis. The extreme swings on the housing market in Paris are temporary. Social and commercial life will start again. Then there will be a deluge of transactions yet to be settled. There may be a substantial catch-up demand from potential buyers. The offer of houses and flats may also increase immediately after the crisis.
We expect that it will take at least a few months, perhaps one or two years, after the start of social and commercial life in Paris, before it becomes really clear what the (medium) long-term effects of the Corona crisis are on the prices of residential real estate in Paris. This also determines in the medium to long term at what yields or prices it is attractive to re-enter the Paris residential property market. Buyers are likely to take a somewhat wait-and-see attitude. But if the sellers of real estate do not bring their properties on the market, the prices per square meter of a house or apartment in Paris will still remain relatively high.