Housing has always occupied a special place in France. Apart from the values it conveys, real estate in its broadest sense and housing in particular embodies many attributes.
The residential market is sustainably supported by several structural factors: an active demographic compared with other Western European countries, a rising trend for household division, retirement preparations and, more broadly, a desire for homeownership. In economic terms, for the last few quarters acquisitions have been driven by the low level of credit rates, despite an increase seen at the end of last year. These very low credit rates have also been helping to rebuild householder solvency.
Furthermore, in the context of continued high volatility in the financial markets, the real estate asset class continues to represent a refuge value. These many supporting factors have ensured consistent activity in the house acquisition market and their combination has encouraged a considerable upturn in prices, particularly in the Greater Paris Region.
This high demand from French house buyers is increasingly concentrated in cities, as are populations, which are attracting the lion’s share of activity. Over the years, regional imbalances therefore become exacerbated, leading to diverging trends in terms of residential pricing: large cities have seen strong growth in house prices, whereas demand for more secondary areas has slowed considerably leading to a decrease in values.
The most striking example is undoubtedly the Greater Paris Region. Despite a series of crises since 2008, there has only been a slight decrease in prices and only for a very short time. Levels have generally since risen again and estimates forecast new record prices in Paris at €8,800 per sq m for July 2017. Price increases in Paris have also had a ricochet effect on the suburbs. The stakes are enormously high. Over the last few decades, the share of expenditure on housing has risen considerably and this has had a substantial impact on householder budgets allocated to other areas. For example, this has driven a downturn in consumption which has slowed the French economy and all its constituent parts. Analysts therefore point to the strength of the German economy which is particularly attributable to a better distribution of activity and residential areas across the country (despite having a considerably higher density than France), as this increases the competitiveness of companies and boosts household consumption by maintaining rents in the various cities at reasonable levels.
The Grand Paris project has been developed to confront these challenges. The construction of 200km of automated metro lines along with 68 new stations around Paris will greatly improve accessibility to certain areas that currently receive little interest from householders. This will contribute to broadening the sites available for construction and increase the housing stock. 70,000 new homes should therefore be developed every year for the next 25 years to meet the needs of the rising population in the Greater Paris Region (population of 13 million expected by 2030, compared with 12 million recorded in 2014) and create better fluidity in the residential market by reducing inequality.
From the institutional investor’s point of view, the substantial decrease in yields for offices and retail have made the returns from residential assets increasingly attractive as they have become close to those offered by commercial real estate investments. In addition, the low rates of return offered by government bonds have automatically made the risk premium far more attractive.
Line 15 of the Grand Paris, the only metro line that will not run through any station in the capital itself, reflects the drive to look beyond the ring road and to incorporate the inner suburbs.
La Française is keen to be actively involved in the development of Grand Paris. We are therefore considering innovative means of offering householders easy access (due to the low cost) to new housing, including homes in the Paris region. The Grand Paris project offers a unique opportunity to break down the barriers between territories, make them more accessible, increase the overall supply of housing and improve living conditions for many more people.