Real estate: What landing for the different markets?

The year 2024 marks a decisive milestone for the French real estate market, shaken by the persistent effects of the rapid rise in interest rates that began in 2022.

In this complex context, the dynamics of the old, new and managed residences markets reveal contrasting adjustments. Transactions in existing real estate are in sharp decline, while the new property market is struggling to recover in the face of rising construction costs and the gradual end of tax incentives. However, certain segments, such as block investment in old properties, are showing a notable rebound. Investors, developers and buyers face unprecedented challenges, trying to find solutions in an increasingly tense environment.

The question remains: how do these different segments manage to adapt – or not – to the new economic and financial realities of the French real estate market? Analysis of the situation with the Ikory economic report for October 2024

The block investment market

Investments in residential en bloc show a significant rebound, reaching 2.2 billion euros over the first three quarters of 2024, an increase of 7% compared to 2023. The old en bloc real estate segment is particularly dynamic with a 49% increase in transaction volumes, driven by a discount of 15 to 25% between block and unit sales. On the other hand, new real estate is down 38%, mainly due to rising construction costs and rates.

Investments in managed residences (coliving, student residences, etc.) have seen a significant drop of 58% compared to 2023, reflecting a lack of investor confidence. The absence of large transactions, called “mega-transactions”, illustrates the difficulties in financing large-scale operations to meet the need for intermediate housing.

The old real estate market

Transactions becoming rarer

Old real estate is facing a slowdown in activity which is expected to continue for a few more months. The crises of 2007 and 2012 saw a drop of 31 and 32% respectively in transaction volumes. In August 2024, the drop in activity was 32% over two years, and is expected to continue at least until the end of the year.

Interpretations are divergent, with some organizations putting the contraction in activity down to sellers who, anticipating a recovery in values, would postpone putting their property on the market until later. However, conditions seem to be improving, particularly in terms of financing, with the start of the drop in rates which reached 3.54% in September, after peaking at 4.20% in November 2023. The effect, however, is rather concentrated on new real estate, the number of loan applications having only increased slightly in old properties.

Towards price stabilization

If the fall in prices of existing real estate started later than the contraction in the number of transactions, it now concerns practically all markets even if the pace remains moderate. Whether in the Island of[1]In France as in the regions, the decline is between 1 and 5% for apartments and, post-covid repercussions, from 4 to 8% for houses. The phenomenon is the same in large metropolises where even those which seemed to be doing well, such as Nice (+1%) and Montpellier (-2.4%), are in turn affected. We will note the resumption of prices in Marseille, after several quarters of decline. It is true that the market in the two-thousand-year-old city is traditionally cyclical.

The forecasts, made possible by the analysis of pre-contracts by Notaries, show that the fall in prices should begin to decelerate, as is the case for apartments in Île-de-France, which, to date, are recording a decrease of 6% on an annual basis but the drop should be reduced to 3% at the end of the year.

At €9,500 in August and €9,370/m² projected in December, Paris is following suit, with a general price level which has fallen by 12.6% since its highest level in November 2022. Activity there is weak and reached the 2009 low point in number of transactions. The gaps between neighborhoods tend to widen, with the most expensive districts being those which resist the best. In the second quarter, the average m² reached €13,910 in the 6th arrondissement where it had only fallen by 0.7% while it was €7,540 in the 19th arrondissement, a fall of 9.8%. This phenomenon is quite usual: transactions, by remaining in high-end real estate, tend to distort the statistics of price developments by giving the illusion of a controlled decline. The drop-off of less sought-after products is more important than it seems.

In conclusion

The contraction in volumes and prices of old goods seems likely to continue at least until the end of the year. Virtually all markets in Île-de-France and the regions are now following the same path at a pace that remains moderate. The reduction in rates initiated by the ECB does not significantly offset activity for the moment, even if the trend would be towards a slowdown in deflation.

The new real estate market

Transactions on a low plateau

Sales of new homes to individuals have stabilized at a rate of around 13,000 transactions per quarter since the start of the year. The drop in volumes was noted mid-year 2023, with in particular the disappearance of the advantages of the Pinel system which reduced sales to investors from 45% of total transactions in 2022 to 36% in 2023 and 31% this year.

Faced with this attrition in demand, developers naturally turned to the block. But, there too, they came up against market difficulties and in particular the expectations of institutional investors who, to maintain their margins, are now demanding returns well above those they accepted before the rate rise. As a result, block sales have suffered a significant drop, with the market representing only 660 million euros over the first three quarters of 2024 compared to 4.72 billion for the entire year 2020, at its peak. It is the social landlords who ultimately come to the aid of the promoters’ dormant programs. Block sales increased by 30% in the first half of 2024 compared to the same period in 2023.

The impossible price adjustment

Contrary to what was expected by the public authorities, prices were not used as an adjustment variable. This is because, in a supply market, it is the cost price and the cost of land which create the output value. The adjustment cannot be made without dooming part of the profession to failure. Hence the maintenance of the values ​​displayed on almost all markets. The only exception is Île-de-France where prices fell by 5.1%, undoubtedly because the margins were more comfortable there.

The beginnings of a recovery

Inventories, in the context of the crisis, tended to increase. The product lead time was 23 months in the second quarter of 2024, while it was only 9.3 months at the lowest at the start of 2022. But, mark of a timid recovery in sales, it seems that this level stabilizes. Another notable indicator is the rebound in bank loan files granted to buyers of new real estate. They are up 27% in September, since the bottom reached in April. A new challenge, the recovery will make it possible to revive the sector which will, within a few months, have to face the traditional freezing of building permits during the pre-election period.

In conclusion

The new real estate market, deprived of the windfall of tax measures and faced with inflation in construction and financing costs, suffered a severe crisis from which it is now emerging weakened. Basically, the scarcity of land and the constraints of energy change do not facilitate its resurgence, a few months before the start of municipal elections which, traditionally, have the effect of freezing activity

What to remember?

The price adjustment, hoped for by the public authorities, is slow to materialize, especially in new construction where construction costs remain high. Stocks of housing awaiting sale continue to grow, with an average clearance time of 23 months in the second quarter of 2024. However, the increase in loans granted for new properties (+27% between April and September) signals a slight trembling of the market, although fragile, in the run-up to the municipal elections, a period generally marked by stagnation in building permits.

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