Faced with the exceptional events that affect the French Real Estate Market today, this is a somewhat special barometer. Under current conditions, it is indeed difficult to comment on figures which relate only to the first fifteen days. There are different scenarios regarding the evolution of the French real estate market in the short and long term, with all the caution necessary in this context.
1. Containment lowers property fever
All the signals were green for an exceptional real estate spring. The coronavirus crisis will have decided otherwise. Until March 16, the date on which the President of the Republic announced to the French that they were entering a period of confinement, the real estate figures were indeed in good shape. Like the months of January and February marked by a particularly high price increase for this time of the year, the first fifteen days of March, in turn, attested to the incredible dynamism of the market. In just two weeks, fares in the ten largest cities in France had already increased by 0.2% and even up to 0.5% for Paris, bringing Parisian prices close to 10,600 € / m² on average.
However, the French government’s decision to reduce social interactions as much as possible in order to fight the spread of Covid-19 gave an abrupt brake on this euphoria. Closed real estate agencies, canceled housing visits, postponed transactions, a study of bank financing files postponed… since the implementation of containment measures, the stone market has come to a complete halt.
2. A contraction in the volume of transactions to be expected from the end of the crisis
Impossible to hide the face: the health crisis which shakes the whole planet today will have repercussions on the world economic markets. On a French scale, the Coronavirus epidemic should in all likelihood lead to a decline in economic activity. For how long? If we refer to the Chinese example where the population remained confined for 6 weeks, a partial lifting of the confinement could begin within a month. Which leaves us hoping for a return to normal by June. The impact on the economy will, therefore, depend on the duration of this health crisis. Indeed, 35% of our economy would be shut down according to INSEE and each month of confinement would then lead to a decline of 3 points in GDP growth. Such a situation is almost unprecedented because French annual growth has usually fluctuated around 1% since 2008. However, assuming that a catch-up in the economy in the 3rd quarter could partially offset this damage, the economists of the insurer Allianz predict annual growth in 2020 of -1.3%.
Without showing pessimism, the real estate market should therefore also be more or less markedly affected by this unprecedented situation. In the short term and beyond the confinement period alone, a sharp contraction in the volume of transactions is to be expected. In fact, this crisis comes at the height of the real estate season, the months of March and April alone represent 20% of the sales promises which are signed per year. We should therefore end 2020 significantly below the million transactions reached in the two previous years, contrary to what the market dynamics in January and February augured.
Even though most of the sales will be made over time, there will be 100,000 to 200,000 fewer transactions in 2020 for the old residential market. Among the two main reasons that could explain this fact: the behavior of banking establishments at the end of this period of uncertainty but also that of individuals.
As for the banks, the period of exit from the crisis will invite establishments to be more careful. Priority should be given to businesses in difficulty at the expense of households. Loan conditions could then tighten and the production of new housing loans slow down. As for individuals, some are already seeing their income significantly reduced by this crisis. Self-employed, business leaders, liberal professions, and a third of the partially unemployed workers must first heal their wounds before considering a real estate project. Even for those whose financial situation will not be directly impacted, one can fear a crisis of confidence fueled by the fear of unemployment and the future, mechanically rejecting a project which commits them to the long term.
In addition, the crisis of 2008 teaches us that in a stalled market, certain situations (professional obligations, family changes, inheritance, etc.) force households to pursue their real estate project. These constraints weighing more on the sellers, the balance of power between supply and demand which for years had favored the latter, should reverse.
We, therefore, anticipate a fall in prices on French territory for the coming months. However, this decline would remain moderate, as suggested by past pandemics. In fact, the 2003 SARS epidemic lowered prices by only 1.6% in Hong Kong, while volumes fell by 70%.
Furthermore, this shock will not hit all territories with the same force. The markets which have benefited from a large demand hitherto and for which potential buyers are less financially impacted, with, for example, a large proportion of CDI executives who can telework, will resist better than the others. Most of the large French cities would be more spared by this drop in prices.
3. Two possible scenarios over the long term
Upset, the French real estate market will no doubt be. However, due to a total lack of visibility as to the evolution of the coronavirus epidemic and the uncertainties which weigh today on the French economy as well as on the world, we are not able to determine with precision which will be the long-term impact of this health crisis on transactions as well as on prices.
The only certainty: the dynamism of the market that we saw a few weeks ago and which pushed us to see in 2020 an exceptional future growth for real estate is now relegated to the rank of ancient history. In this context of uncertainty, there are two possible scenarios.
Scenario 1
Assuming the epidemic is brought under control before the summer and a rapid exit from the crisis where the various measures taken by the government and by the European Central Bank are bearing fruit, everything suggests that the property market could start again. without too many clashes from September. Unlike the 2009 crisis where the very engine of the economy, namely the banking system was on the verge of explosion, banks are now in good health. In other words, currently the economy is “only” at a standstill and, in the best of cases, could, therefore, restart without too many consequences.
In fact, since the start of this crisis, the government has announced the implementation of various budgetary and fiscal stimulus measures aimed at getting our economy back on track. These announcements would be likely to reduce the loss of income of the French and to dispel their fears. In addition, the emergency plan launched by the ECB would push the banks to keep the credit tap open with rates still as low and would encourage the French to take advantage of it as they have been doing since 2015.
Like the economy as a whole, the real estate market will experience a dynamic recovery towards the end of 2020, supported by the partial postponement of certain projects put on hold in the spring.
Scenario 2
However, a darker scenario may loom in the long term and strongly impact the French economy, which remains under the threat of three risks of different natures: a re-emergence of the virus and new containment measures, a new recession, and a financial crisis.
First, if the health crisis were to last with a new peak in the epidemic in the fall, or even next spring, the episodes of confinement would likely increase and the prospect of recovery would fade away. many parts of the economy are today in serious difficulty. The effectiveness of the measures announced may not be sufficient and their implementation hampered by the paralysis of the country also affecting our administrations. A large number of bankruptcies, in particular of small companies and by that, the unemployment of many employees would drive the French economy towards a new recession. At the same time, despite all the efforts of the central banks, this crisis, which is straining the financial markets, could result in a liquidity crisis.
If all or part of these risks materialized, the hypothesis of a smooth exit from the crisis on the real estate market would fly away. The latter would, therefore, have to go through a downturn that would last for several years.
Action Plan
Stay at home to make a success of your real estate project ”, this is our advice, to all those who are fond of the idea of selling or acquiring housing in the coming weeks. No question indeed for sellers and buyers to panic and simply cancel their plan. Before drawing a cross on their trading ambitions, it is better to wait to see how the market will evolve. Be patient and, why not, take advantage of these days when they are confined to their homes to, conversely, move forward on their project.
For sellers, to start by taking stock of the distance with the real estate professional they had chosen to support them in the sale of their property. If the real estate agencies have effectively closed, many agents work remotely and therefore remain reachable to answer their questions. Better, for those who had not had time to sign a sales mandate, certain agencies can offer them to do so by means of the electronic signature.
Other information for sellers: even in the middle of a confinement period, their accommodation continues to be marketed thanks to the numerous real estate advertisement portals that can be consulted at any time by potential buyers. Visits can also always take place using the virtual visit devices set up by certain agencies. A real plus when you know that 77% of French people want to go through virtual visits before a “real” visit to save time * [1]. And, while waiting to be able to make buyers discover their “real” property again, sellers can also take the opportunity to tidy up a little, unclutter and finish the small DIY jobs that have been waiting for years. History that their home sweet home is as attractive as possible at the end of this quarantine.
As for the buyers, they too have the opportunity to advance on their project. By first reflecting on what exactly they expect from their future accommodation (area, sunshine, balcony, etc.). Then, once their search criteria defined with precision, by going around the real estate sites to consult the various online advertisements. Finally, in order not to waste time once the confinement is lifted, nothing prevents them from preparing their financing dossier in advance by sorting the documents necessary for the study of it by a banking establishment (account statements, tax returns…). Or, to contact the internet with their bank advisor or a credit broker for information.