Paris Property Sets Off Fireworks

French Property Insider
Volume VIII, Issue 28
July 15, 2010
Paris, France
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Bonjour French Property Insider Subscriber,

The price of property in Paris has exploded like last night's fireworks at the Eiffel Tower.

It stormed just a few hours earlier, then the winds blew the clouds away, and the crowds gathered on the soaked earth of the Champs de Mars, just in time to see the annual fireworks display. It was as magnificent as ever and is a formidable replica of what's happened to Paris real estate in the last few months.

The journal "Le Parisien" just reported on the latest Paris property statistics from the end of June which indicate that for the first time, certain districts have seen appreciation into the double digits of over 20% thanks to a huge demand by foreigners and an unwillingness by owners to put their property on the market -- hence demand is higher than supply bringing prices naturally up, up, up.

The price of one square meter has gone to a record high of 7,079€, an increase of 14.98% in one year. Not one single district was untouched by the explosion, with central Paris recording increases of double digits -- as much as 18.23% in the 1st and 20.66% in the 6th.

There were 8,600 transactions recorded during the course of the first quarter, 76% more than first quarter 2009. Agency window offerings are flying off display faster than one can blink an eye. Last year when they could count on having 30 or so on offer, this year they're lucky to have two or three with which to replace them.

Before the economic crisis, a buyer would sell their property before buying another to replace it. Now they buy before they sell -- as there is so little risk their property will not sell in today's climate. Adding to the frenzy have been the foreign buyers in the center of the city -- with the weakening euro and low interest rates increasing their appetite. Meanwhile the French are moving to the outer districts taking advantage of an opportunity to sell high and buy for less -- so even these districts are experiencing the explosion: 22.94% in the 9th and 21.39% in the 10th.

According to professionals, if the interest rates stay low, then the trend will continue...but they didn't count on the recent negative publicity resparked by the New York Times and now spreading like wildfire all over the globe about laws related to short-term rentals. (See FPI_July_8_2010 to learn more.)

I don't believe the city officials who quietly added these laws as long ago as five years ever counted on setting off such fireworks. With only a few denouncements with which to enforce the laws, they assumed it wouldn't have such a major effect, but now that the truth is out, serious damage could be done to the industry as a whole.

I know for a fact that the Mayor's office is aware of the fear that has spread like an epidemic among would be investors, tourists and real estate professionals, but they are slow to make any official statement. For now, would-be foreign buyers are in a "wait-and-see" status, but that could be a big mistake. While the Mayor is taking his time to find a way of rectifying the potentially disastrous effect of laws never meant to be seriously enforced (and this is exactly what I believe them to be), investors may lose the advantage of low interest rates and the weak euro, while prices have risen.

Of course, if these laws were to be seriously enforced, the market will come crashing down as if the Eiffel Tower itself were bombed and fallen to the ground.

Guess we can't do much but wait and see...until September when they promise to offer some explanation.

A bientôt,

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