Wondering if now is a good time to buy real estate in France? Even after the recent spike on mortgages interest rates from mid 2022? Are there any opportunities left?
It may sounds obvious the answer, but it is not. We will analyze the actual context, opportunities and risk in the blog to give you some hints based in our experience and best understanding.
Table of Contents
Will real estate prices drop in France?
First to understand is that real estate in France is the 2nd most popular investment (just after Livret A). French loves real estate. But prices are already dropping in some large cities as by September 2023 (-4,5% in Paris, – 7,3% Bordeaux…).
However, it looks better in some small to medium cities. Here an interesting picture of the actual price €/m2 in France:
Source: ‘Mieux Vivre Votre Argent’ magazine September 2023 edition
Will price drop be contagious to other cities? Let’s first analyze the context:
High inflation led European Central Bank to raise interest rates, impacting real estate as well. It came from less than 1% in early 2022, up to 4% by mid-2023.
If the cost of borrowing money increases for individuals, less and less people can afford buying a property, which means that offer will overpass demand, and therefore prices could fall.
It is also true that the demand is less than usual, as a huge number of people changed houses recently due to COVID lock downs.
Hence, there is no big urgency for those people to sell as they just moved in few months ago.
However, some will still require to buy or sell for various reasons such as marriages, divorces, new jobs, heritages, new family members, etc.
From the offer side, there is a sharp decrease of new building units (-40% during 2023) as conditions are not favorable for constructors neither.
Less people can get access to credit (so less buyers), supply chain issues and high energy prices causing high inflation, high interests rates, etc.
Nobody has a crystal ball to predict the future, but we believe that prices may continue to drop for some more months.
Only hope will be if central banks manage to bring inflation down, and therefore cut interest rates. It could allow more people getting access to credits and could boost the market.
Impact of energy efficiency regulation (DPE) in real estate prices in France
Another key element to consider is the ‘passoires thermiques’ or energy inefficient properties (categories F and G) as by new legislation, owners of these kind of properties will not be able to rent them. These kind of properties has fallen down to -20%, -30%.
After the law ‘Loi clima et Résilience’ was passed, it added a new constraint to consider. You should look up to the DPE level (Diagnostic de Performance Energétique) which goes from A (best score), down to G (worse score).
As for now, properties classed F and G (Gas or fuel consumption > 450 kwh/m²) cannot be rented. During next years more other categories will be penalized as well.
Buy cheap, renovate, make money
DPE regulations could be a great opportunity to buy at huge discount and renovate a property (as long as you are not afraid of works). ‘MaPrimeRenov’ is a government help to fund works to get a better note on the DPE levels. You may want to have a look on the conditions to apply (not a investment advice, do your own research).
Conclusion and final thoughts
Buying a property for rental in France could be a good business in the long term, even with the additional constraints of high interest rates.
However, we believe that the key points to secure a successful rental investment are: A good location, quality of the property (lift, balcony, low energy consumption, …) and the most important the quality of your tenant!
Experts recommend to invest in large and dynamic cities (targeting students, young families, executives) and delegate the property management to an agency. Even though it represents paying some additional fees (around 7% of the rental), you will gain ‘peace of mind’.
Finally, in France fixed interest rates could be negotiable in case of a drop of in the future. So your monthly payment could decrease if you manage to renegotiate it. Of course, you would need to check your cash flow and debt rate – which must be less than 33% of your revenue. Check our blog about buying real estate in France for more ideas.
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Bon chance!
Disclaimer
Please remember that we are neither financial nor tax advisors. We are just sharing our best understanding based in our own experience. This blog is for educational purposes only. Do not make investment decisions solely based on what you read in this blog. What works for us, may not for you. Do your own research and look for professional service if required. Read our full disclaimer in the ‘about’ page.
