It is common knowledge that Paris has been the most popular European tourist destination for many years. There is a mystique surrounding the culture and history of Paris which has created a luxury real estate market comparable with London. Like London it is in effect a market within a market because it does not always reflect the underlying French real estate market. However, only a few years ago the French government, under socialist François Hollande, decided to ramp up the tax on France’s growing number of ultra-high net worth individuals (those with a net wealth of at least $30 million).
Amid concerns that ultra-high net worth individuals may be tempted to move to London and other prominent EU cities, many suggested the Paris luxury property market had peaked. Fast forward just a few years and Paris now has more ultra-high net worth individuals than London. The real estate market is buoyant and still attracting growing numbers of international investors.
Who buys property in Paris and why?
There is no doubt that tax changes introduced by French president Emmanuel Macron, reducing the tax burden on wealthy investors, has helped. Adjustments to the country’s wealth tax, with the exception of property assets, effectively cut the tax bill of those in the higher wealth bracket by around 70%. We have also seen the introduction of a flat rate capital gains tax which has been welcomed by many wealthy real estate investors. Combined, these actions further reinforce the strength and attractions of the Paris real estate market.
For some time now France has been popular with investors from the UK, Belgium, Switzerland, Germany, Italy and Holland. There has also been significant interest shown by investors from the USA. Interestingly we have seen some unexpected trends emerging with regards to British investors which may surprise some people.
How has Brexit affected the Paris real estate market?
First and foremost, confusion and uncertainty are the bane of investors and investment markets around the world. As a consequence of this concern the French government recently triggered the release of a €50 million fund to cover the consequences of a no deal Brexit. When you consider that Brexit came to life in the summer of 2016, it is fair to say that the perceived impact has been gradually building to D-Day which is 29 March 2019. However, how has this impacted Paris real estate prices?
While we await data for the 2018 calendar year, we know that British investors are still at the forefront of the international real estate investment community in France. In 2017 the number of non-resident British investors acquiring real estate in the country fell by 18% year-on-year but the number of British buyers living in France actually increased by 17%. This would indicate that Brexit has prompted some wealthy UK property investors to move to France.
Paris expected to lead European real estate growth
There have been a number of reports in recent weeks suggesting that Paris will be among the best performing real estate markets in 2019. Growth over the year is expected to hit 6%, as it is in Madrid and Berlin, and while slightly lower than 2018 this would still be an impressive performance. It is fair to say the Paris real estate market is bucking the European wide trend. Maybe wealthy investors are able to keep one eye on the long-term prospects for Paris, looking beyond any potential short-term volatility?
How easy is it for foreign nationals to get a mortgage in France?
We know that in years gone by it was more difficult for foreign nationals to obtain a property mortgage in France. However, in recent times the French authorities have become acutely aware of the ever increasing interest in French real estate, particularly Paris, especially amongst wealthy investors.
There are still tax implications and mortgage rules which will vary depending upon whether you are resident or non-resident in France. The existence of specialist mortgage providers for international investors and expats has added a welcome level of competition to the sector. We have experience in all of the major international real estate markets, contacts around the globe and can arrange bespoke mortgages where others have failed.
The difference between retail and private banking mortgages
As in many other luxury real estate markets around the world there can be significant differences between retail bank offerings and those structured by private banking groups. Over the years it has become more evident that there is no one size fits all mortgage for international investment in real estate. Our extended relationships with specialist banks in the retail and the private sector have allowed us to create bespoke real estate investment tools which are not available “off-the-shelf”.
As a consequence of a fragile EU economy, European base rates are unlikely to increase dramatically in the short term. Nevertheless many real estate investors have decided to lock in current mortgage interest rates for in excess of 20 years. This degree of certainty is appreciated by many high net worth and ultra-net worth individuals.
Closure of Crédit Foncier Bank
It is fair to say that the closure of one of France’s oldest banks, Crédit Foncier, will leave a short-term void in the international mortgage market. The company was prominent in the provision of home loans to British and American buyers looking to the French real estate sector. While the operation will be absorbed into the larger group, this void is unlikely to last long. International investor interest in the French real estate market and especially Paris has never been stronger.
Historically we have had good relations with Crédit Foncier and while the closure was disappointing, we are not tied to any one party. As a consequence, we can use our leverage in the high value mortgage sector to secure comparable deals elsewhere. If you require any advice regarding real estate investment in Paris, or the French market in general, please feel free to call us anytime.