WIRE MAGAZINE PARIS - OUR VIEWS ON THE MARKET OF PARIS

Paris has always been considered one of the Europe’s major center of finance, commerce and fashion. The importance of the city has always attracted workers, students and artists that helped Paris to gain its status of city of major importance in Europe. The “Ville Lumiere”, nowadays counts more than 2 million inhabitants, making it the most populated city in France.

In Paris all the “fundamentals” needed in order to make a good real estate investment are present, making Paris a “safe” market, considering its economic and political power. We tried to understand how the Paris real estate market will evolve and what will the consequences be with the help of the WIRE Research Center, who produced a market report on the city.

Even though during the last decade France real estate market has been quite volatile, it has been more stable than most European counterparts. This happened mainly due to the financial crisis in 2009, where the House Price Index reached its bottom and quickly recovered until 2011, where a new record high was touched. Furthermore, as a consequence of several political issues and of an overvalued market, prices remained stable since 2016. In 2017, indeed, Brexit’s effect on Paris and a sustained economic growth caused a rapid increase in the House Price Index bringing it to be close to 2011 values. The crisis was therefore overcome and had no major consequences for Paris real estate. The city remained a stable and solid market, that offers important appreciation margins.

We can identify several factors at the base of overall Paris properties price increase: firstly, the city has reached its expansion boundaries, so that the maximum capacity of buildings in the city has been reached, causing the demand to be significantly higher than the supply. Secondly, interest rates are at an historical low level, investors now know that the rates will not stay that low for much longer. Lastly, the Brexit referendum managed to move international interest from London to other major European cities such as Paris. The rising demand has brought to an important increase in the number of real estate transactions. Prices differ significantly between each arrondissement, as well as their respective yearly growth. Values are higher in the 6°, 4°, 1° and 7° arrodissement, where average prices exceed 11,600 € / SQMT with peaks

of 31,000 € / SQMT in the most exclusive buildings. Even if the 6° and the 1° place themselves in the top 3 also for what concerns the price yearly growth, the 4° and the 7° leave their place to many arrondissements historically considered less relevant, as the urban redevelopment projects taking place in other arrondissements increased the appeal for possible oversea investors.

Consequently, some arrondissements that have had historically the lowest prices on the market are potentially great opportunities for the investor looking for a profitable longterm capital gain. It is the case of the 9°, 20° and 19°, which in terms of yearly percentage appreciation have largely surpassed more known arrondissements.

The most expansive locations are found in the most renowned arrondissement, and corresponds to Saint-Thomas-d’Aquin, Odéon and Notre-Dame-des-Champs. However, by analyzing the 5 years period ending in 2017, these areas have been subject to a low appreciation, sometimes even negative. Different is the situation for lower-values neighborhoods: on a 5 years base, the least expensive are the ones which performed better in terms of price appreciation, respectively: La Chapelle +32.30% and La Goutte-d’Or +16.92%.

Nowadays, Paris seems one of the only European capitals which are best able to attract substantial capital by foreign luxury real estate investors. The average price per property now exceeds 8,500 € / SQMT, reaching level close to the 2011 peak. Recently, the city has been subject of overseas investments by Chinese, European and American investors who are directing their capital to the city. If the money inflow will last over the next period, property prices could reach levels comparable to other famous cities outside the European continent, such as cities that have now reached an all-time peak and cannot maintain a sustainable growth in the medium term. It is enough to look at prices in Hong Kong, with an average of 41,000 € / SQMT, Tokyo 29,500 € / SQMT to understand how the prices of properties in Paris are destined to increase. In conclusion, we think that if international investors will continue to inject capitals into Paris real estate market, average prices per square meter for luxury properties could increase up to 50% of the current value.