A Postcard from the Riviera.

Posted by admin in Property Letters | October 6th 2008

FRENCH PROPERTY & THE GLOBAL CRISIS.
(While Riviera Sales Slow Values Hold Firm.)

« Ce qui a changé, ce qu’il faut faire. » (What has changed, what one must do.)

In general, after nearly a decade of increases the French property market has levelled somewhat and banks are tightening access to credit, albeit much less virulently than in Britain and Spain. 

The sector has been shaken by a 20% drop in sales of new property in the last year – the doubling of home prices over the last 10 years has led to a drying up of demand. Candidates to buy are still there in their numbers, all wishing to realise their dreams, but they can not see their way to doing so as banks tighten up and shorten the terms of mortgages.

But that is all happening in the homes market where the crisis weighs most heavily. New home credit has dropped from 149 billion euros a year ago to 134 billion for the last 12 months.

Will prices fall?

The deterioration in price is not yet visible, éven rising slightly in sought after areas. However they must be due to enter a phase of decline and according to Figaro Magazine economists this might be as much as 5% or 6% nationally by the end of 2009. In any case it is likely to be far more gradual, and less marked than in the UK and some other countries.

Why ?

Household debt as a percentage of disposable income by the end of 2007 was:
•    In the United Kingdom – 180%
•    In the U.S.A. – 140%
•    In Germany – 100%
(Source: The Economist magazine – 11th to 17th October 2008)
France is not included in the Economist table, but the author believes it to be 50% or less.

France has committed fewer errors.
France has not accumulated the bubble of credit that Britain has for example.
France does not have the need to balance excesses which were never committed in the first place.

The price drop will therefore be relatively limited – under the double condition that interest rates do not increase and that the economic situation doesn’t deteriorate further.
However, there has been a surge in prices and now a pause.
Prices rose significantly from 2000 to 2008, but they had been soft from 1992 to 2000. If taken from 1990 however property price increases have followed inflation or slightly surpassed it, and if one goes back a whole generation to 1970, prices have increased at 4% per annum. This corresponds to the increase in buying power of the French.
And how are French banks?

“France has pledged €320 billion in state guaranteed lending to banks, and €40 billion to recapitalise banks in trouble….They have bailed out just one, Dexia, a small Franco-Belgian lender. In truth the bailout fund is intended as a precautionary measure. Thanks to their wide retail networks, and relatively tight regulation, most French banks have been able to absorb the huge losses they have made on subprime loans in America. Nor have the French been on a huge credit binge. The household savings rate remains high.”
(Source: The Economist 18th – 24th October)

Turning attention to the French Riviera.
Is now the time to buy ?

If we’re going into recession?
If we’re coming out of recession or just avoiding it?
If the Rand is falling?

When to buy is the most delicate question of all – psychology plays such a big role, but in the final analysis everything depends on the status of the property – the quality and the position.

We all have to make up our own minds when the time is right.

The rental market.

Rentals remain strong, especially in Cannes which is the regional centre for business conferences. Almost everything available remains booked for major events. Even (and perhaps especially) when times are hard people need to network to stay in business, but guests are negotiating down the price of their accommodation.

For the same reason there is also a drift from expensive hotel accommodation to more affordable shared apartment accommodation.

The sun continues to shine on the French Riviera, so there is evidence of an increase or at least a constant demand for holiday accommodation as northern Europeans decide to stay closer to home, and choose destinations they can drive to.

Quote from an investor – 23/10/08 – “all we can say is thank goodness we are in rental property!! At least one still has the property and rental flow.”
Will foreign buyers continue their interest in property on the Riviera?
They have certainly been very active in recent years, especially at the top end of the market and they will continue their interest in this niche, and the figures point to this.
Within the writer’s area of operation and expertise is the Cote d’Azur on the French Riviera and the figures below apply to the Cannes sector – including from south west to north east – Theoule-sur-Mer, Mandelieu, La Napoule, Cannes, Le Cannet and Mougins.
Volume of sales (excluding new)
First 6 months of 2007 vs first 6 months 2008
Down 15%
Price per m²
First 6 months of 2007 vs first 6 months 2008
Up 5% – From 4 211€ to 4 407€ per m²
(Sector Sophia Antipolis / Antibes
Up 4% – From 3 910€ to 4 062€ per m²)
Sales by price
First 6 months of 2007 vs first 6 months 2008
•    >5 000€ per m²            23% vs 27%
•    3 000 – 5 000€ per m²      53% vs 52%
•    <3 000€ per m²           24% vs 21%
100%   100%

The upper end therefore is accounting for an increasing proportion of sales. Much of this is foreign money.
Haute Gamme: Quelle crise?
(Upmarket: What crisis?)
Here the increase has, and continues to far exceed the national average.
Markets such as Central Paris, top ski resorts and the French Riviera capture a wealthy clientele largely sheltered from the problems of financing and the vagaries of the market and as Liam Bailey the head of residential research at Knight Frank points out, “The flight to quality in terms of both location and product we have seen over the years will remain a constant.”
Guy Watson-Smith.

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