Is it a good idea: real estate investment in France?

French house prices are still rising modestly

French house prices continue to moderately rise, even though there is continuing social unrest and a slowdown in the wider eurozone. In Metropolitan France, house prices accelerated by a modest 3% during the year to Q1 2019 (1.8% inflation-adjusted), as reported by the National Institute for Statistical and Economic Studies (INSEE). House prices rose by 0.7 percent in Q1 2019 (0.9 percent inflation-adjusted) quarter-on-quarter.

The real estate scene in Paris saw a much stronger increase in house prices than the wider nation. According to the La Chambre des Notaires de Paris, the average price of existing apartments in the capital city rose by 6.5 percent (5.2 percent inflation-adjusted) to €9,680 (US$ 11,000) per square meter during the year to Q1 2019.

  • In Île-de-France, the richest and most populous area, the average price of apartments rose to €6,010 (US$ 6,830) per square m. to Q1 2019.
  • In the Petite Couronne (Small Crown), the average price of apartments saw a rise to €4,730 (US$ 5,375) per square m.
  • In the Grande Couronne (Great Crown), the average price of apartments rose a bit, to EUR 2.970 (US$ 3.375) per sq. m.
  • In Hauts-de-Seine, one of the country’s most populated parts, home prices rose to €5,800 (US$ 6,591) per square m.

During the long housing boom that lasted from 1997 to 2007, French house prices rose by 150 percent (112.5 percent inflation-adjusted).

The housing market started to decline in 2008, but the fall in prices was modest. Since declining by an annual average of 1.7% in 2012-2015, house prices began to rise again in 2016.

While the short-term outlook appears bright, the market seems poised to pause. Perhaps house prices were pushed so high by low interest rates compared to rents?

According to the General Council for the Environment and Sustainable Development (CGEDD), existing home sales increased by 2.6 percent to an annualized 985,000 units in Q1 2019. On the other hand, new home sales declined marginally from the previous year by 0.4 percent to 30,863 units in Q1 2019.

Residential building construction is on a downfall. In the first four months of 2019, the approved dwellings fell by 7.3 percent to 134,400 y-o-y units, while the dwelling starts fell by 5 percent y-o-y to 124,400 units, according to the Ministry of Ecological and Solidarity Transition.

France’s economic growth is slowing down. The economy expanded by 1.6 percent in 2018, a decline from 2.2 percent expansion in the previous year. Development was driven largely by exports, which helped counter a decline in consumer demand following violent “yellow vest” demonstrations that caused several shops in Paris to shutter on crucial year-end shopping days. GDP rose by 1.2 percent annually during Q1 2019, at the same rate as the previous quarter.

House price change graph in France

According to the European Commission, economic growth is expected to fall further to 1.3% this year.

In France, there are no limits on foreign investment. Most of the land is freehold. Apartments are mostly held in two forms of freehold: co-ownership (which includes meetings of co-owners, with votes taken and accounts kept) and volumes, mostly adapted for mixed-use developments. There are also leaseholds for up to 99 years.

Rental Yields

Rental returns in Paris are disappointing

The positive thing is that if you have an apartment in Paris, you won’t have any problem letting it go. Demand outstrips availability, the key reason that rentals are not higher is that French rental contracts are mostly long-term and there are legal limits on rising rents within the period.

However, the gross rental return from apartments in Paris is low, at about 4.2 percent for small apartments and 3.9 percent for large apartments (however it is fair to assume that our Paris findings do not reflect yields in less attractive areas, which are likely to be higher, as our survey focuses on Paris’s high-end city centre).

The price of a 120 square. m. apartment in these areas is about EUR 970 per sq. meter, or EUR 90.1 per sq. ft. We didn’t notice a major price gap this year between smaller and larger apartments.

The average monthly rent ranges from EUR 32 to EUR 35 per square. m. or EUR 3.8 to EUR 3.25 per sq. ft. Smaller units tend to cost more in comparison.

Round trip transaction costs for residential properties in France are high.

Buying Guide

Transaction costs are moderate to high in France

Round-trip transaction costs in France can range from 7.90 percent to 28.99 percent. New assets have the largest costs due to a 20% VAT charge, but this is partially offset by a reduced processing fee. Real estate agent commissions vary from 3% to 10%, typically split between buyer and seller.

Landlord and Tenant

Tenant protection laws are onerous in France

French tenancy law is very pro-tenant.

Rent: While the original price can be readily negotiated, the rent can only be updated once a year and not more than the increase in the (new) INSEE rent index. In combination with a very restrictive contract structure, this means that rentals of old apartments tended to be far behind new rentals and prices.

Tenant Security: An unfurnished property contract requires a duration of at least three years, whereas a furnished property contract might be for a period of one year. In all cases, and after the lease is ended, the owner can only reclaim the house if he or a family member continues to stay there or plans to sell the property. Moreover, it takes a long time to evict someone through the court system.


Economic growth to slow further; budget deficit to rise again

The French economy has risen by 1.6 percent in 2018, a decline from the previous year’s 2.2 percent rise, in the middle of social turmoil and a broader eurozone recession. Development was driven largely by exports, which helped counter a decline in consumer demand following violent “yellow vest” demonstrations.

GDP rose by 1.2 percent annually during Q1 2019, at the same pace as the previous quarter.

Macron ‘s ambitious economic policy has been firmly opposed by the middle class, resulting in more than six months of social instability. The “yellow vest” protest movement, which began in November 2018 as a peaceful backlash against rising fuel and living costs, quickly turned into a wider rebellion against Macron’s pro-business economic policies.

GDP Growth and Inflation in France

Desperate to curb the Macron authority revolt, the government launched a €10 billion plan in December 2018 aimed at increasing salaries for the poorest employees and offering tax cuts for most pensioners.

In May 2019, inflation was 0.9%, down from 1.3% in the previous month and the lowest level in two years, based on INSEE figures.

France’s budget deficit was about 2.5 percent of GDP in 2018, down from 2.8 percent of GDP in 2017 and the lowest point since 2006, according to INSEE. The deficit is projected to increase again to 3.2% of GDP next year as the payroll tax bonus system becomes a permanent tax cut.

Notwithstanding this, France’s budget debt is one of the largest in the euro world. Government debt was 98.4 percent of GDP in 2018.

Decreased unemployment

France’s unemployment rate tends to decline in the wake of labor market changes. In Q1 2019, the national unemployment rate was 8.7%. Despite this, France’s unemployment rate stood above the EU average of 7.7% in March 2019 and the euro region average of 6.4%.

Over the same period, the unemployment rate was just 3.2 per cent in Germany and 3.8 percent in the United Kingdom.

Unemployment rate graph in France

French President Emmanuel Macron, who was elected last May 2017, has begun taken measures to ease the pressure of the country’s burdensome labour code and to reduce the gap between long-term (highly protected) workers and others on short-term contracts or unemployed.

Macron also aims to reduce unemployment compensation in the country and to increase the time for citizens to work in order to apply for assistance, with a view to promoting jobs and investment. The government is also likely to raise payroll taxes on businesses that have made use of many short-term contracts.


Real estate investments in Paris. What should you know before?