THE IMPACT OF THE COVID-19 CRISIS ON SUPPLY AND DEMAND
To date, in this context of unprecedented health crisis, it can be said that the real estate market is suspended: it is indeed impossible to organize visits to apartments and to complete new transactions, except in exceptional cases. However, buyers continue to show interest in the properties on the market and sales concluded before the confinement are maintained thanks to the work of our teams and some of the notaries who continue to sign sales in revolving or digital signature.
The duration of the containment and its effects on the real and financial economy will be decisive for the real estate market.
The biggest question is: what will be the state of demand? It may be influenced by several factors: the psychology of buyers and their solvency, especially since interest rates could rise in the wake of the cost of sovereign debt and the possible increase in inflation linked to the massive money creation underway.
For the offer, especially for Parisian main residences, the psychological factor is major and everything will depend on the anticipations of the players: sell immediately before prices fall? Waiting for the situation to return to normal? The only certainty lies in the "compulsory" life projects that should follow their course whatever the context. However, "comfort" projects depend on the economic situation and expectations.
THE IMPACT OF THE COVID-19 CRISIS ON PRICE TRENDS
This is the main question and depends on the factors mentioned above:
- Psychology: What will be the anticipations of the economic actors? The real estate market can be self-fulfilling.
- Economic conditions and safe haven: Real estate is a safe haven in times of crisis, especially when the financial markets are suffering and alternative investments offer little or negative returns. However, it is not decorrelated from the rest of the economy and this safe-haven character, which could support prices, is only valid if the rest of the economy is not too severely impacted.
- Supply & demand: In the medium term, the price of real estate depends on the balance between supply and demand and it seems to us that demand is most likely to vary significantly in a small and dense market such as that of Paris. If demand remains stable or falls slightly, then prices will remain stable for the most sought-after properties and will fall slightly for properties with defects (noise, lack of brightness, high floors without elevators, floor plans with a lot of loss of space, poor sectorization for family apartments, etc.). However, if there is a significant drop in demand, then a general drop in prices is to be expected.
In any event, future price and demand developments are certain that sellers who have been interrupted in their sales plans will not enter the market with prices adjusted to pre-Covid-19 prices. Therefore, it is the market, i.e. the buyers, who will or will not respond to these bids, resulting in a period of recovery or adjustment.
THE PARISIAN HIGH-END REAL ESTATE MARKET, A RESILIENT MARKET
The Parisian high-end real estate market is neither that of London nor that of the rest of France. Indeed, the Paris real estate market is particularly resilient compared to that of other world capitals because it is less exposed to the volatility of international investments. In Paris, acquisitions by non-residents, although on the rise in recent years, account for less than 10%, whereas in a city like London they can be as high as 40%.
Another element that could make the city more resilient, this time compared to other French cities: a large proportion of Parisians work in the tertiary sector, continue to work from home and earn a salary. These are as many buyers who are likely to be still present on the market and sellers who will not have to sell their apartment when the market picks up.
By Sébastien Kuperfis, CEO
April 21, 2020