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B.I.P.
REAL ESTATE HEADLINES
A
Quarterly Publication of B.I.P. Investments Limited
Volume
2, Issue 1
February
10, 2004
B.I.P
REAL ESTATE HEADLINES is free
quarterly publication of B.I.P. Investments
Limited dedicated to the
individual investor interested in the real estate market in Paris.
It brings a selection of recent news, articles organized by key
topics of interest.
SUMMARY
After
a slowdown in the volume of transactions during the first half of
2003, the market increased again in volume during the second half of
2003. Prices have continued to increase to annual level above 12% as
measured by third quarter 2003 transactions. The
2nd, 18th, 20th, 8th and
10th districts have all recorded increases above 15% on a
yearly basis. The combined forces of low interest rates, structural
imbalance between supply and demand for residential units and
government tax incentives in favor of real estate investments are
continuing to push prices higher. Several Eastern European countries
probably offer many attractive real estate opportunities, with
potential for long term growth partly driven by the extension of the
euro zone. Paris, with relatively low prices, demand exceeding
supply and high rental rates, remains a very attractive alternative.
MARKET
TRENDS
-
1st
Quarter 2004 Notaires Press Conference Summary: The real
estate market in Paris, the Hauts-de-Seine, the
Seine-Saint-Denis and the Val-de-Marne remained very dynamic
during the 3rd quarter of 2003. The volume of
transactions increased another 3% over the same period a year
ago. A total of 36,418 transactions took place during the 3rd
quarter of 2003 versus 35,373 for the prior year. Paris property
prices increased again during the 3rd quarter of
2003. Prices in Paris increased 3% on average during the quarter
(annual increase rate of 12.6%). The average price per square
meter is of 3,850 euros and the underlying INSEE price index
increased to 140.5 during the quarter. Source: Chambre
des Notaires de Paris.
-
1st
Quarter 2004 Real Estate Price by District: A complete map
of real estate prices by district (arrondissement) is now
available. The 6th, 7th and 5th
districts remain the most expensive with an average of 5,957
euros, 5,846 euros and 5,100 euros per square meter
respectively. The 2nd (17%), 18th (16.7%),
20th (16.5%), 8th (16.4%) and 10th (15.4%)
districts all experienced above-average yearly price increases: Source:
Chambre des Notaires de Paris.
-
3rd
Quarter Cost of Construction Index: Rising again to an all
time high of 1203 at an annual rate of 2.76%. The Cost of
Construction Index is an aggregate measure, which correlates
strongly with property prices. A rising index is generally
accompanied with rising property prices. Source: INSEE.
-
Real
Estate Market Outlook: While final data about the evolution
of rent prices in Paris is not available yet, it expected that
rents, increased significantly both in Paris and in other major
cities in France. The Observatoire
des Loyers de l’Agglomération Parisienne
(OLAP), a Paris-based organization that monitors rental prices,
is reporting on a preliminary basis a 5.2% increase for rental
prices in Paris in 2003. Rental prices accelerated at a far
higher rate than the underlying CPI with 2% in both 2002 and
2003. Source: Credit Agricole.
-
Still
a Majority of Tenant-Occupied Units in Paris: according to a
recent study conducted by the INSEE, 46% of households in Paris
own their residence. While this number is at a historical high
(35% in 1973 and 39% in 1984), it is still lower than the
national average at 56%. Source: Direct Gestion
/ INSEE.
-
The
Euro and Property Prices in Europe: Residential property
prices in the euro zone increased 7% per year on average since
the introduction of the single currency in 1999. Employment and
economic growth, low interest rates, a probable shift from the
stock market into real estate by households, and easier access
(liberalization) to credit all contributed to these increases. Source:
Direct Gestion
/ ECB.
-
Housing
Supply – Offer Imbalance: In Paris and around Paris 35,000
new units are constructed yearly. There is currently a need for
55,000 units to accommodate market demand. Source:
L’Expansion.
-
Rates
Increase and Property Prices: According to Christophe Morel,
economist with CDC Asset Management, an increase with interest
rates will have a limited impact on property prices, in part
because of the current shortage of residential units in France.
ECONOMY
-
France
Short Term Economic Analysis: “The first half of 2003
turned out to be the low point for activity in the euro zone.
European growth, after stagnating in the first half, accelerated
from the third quarter on. On similar lines, the very low growth
for France in 2003 (0.2%) would include a GDP rise of 0.6% in
Q4, following 0.4% in Q3. Much of the recovery is explained by
the improvement in the international environment, as French
exports have started to grow again since the middle of the year.
Interest rates remain low and this is encouraging house
purchases in particular. Consumption is rising but at a modest
rate”. Source: INSEE.
-
Euro
Zone Economic Outlook: “Overall, the economic environment
remains favorable for the euro area. The recovery of global
economic activity and trade continues to accelerate, and
financial conditions are supportive”. Source: European
Central Bank January Bulletin.
LEGAL
& TAX NEWS
-
VAT
Maintained at 5.5%: The VAT for property repair, maintenance
and construction-related expenses will be maintained 5.5 % (from
19.6%) in 2004. Both landlords and tenants are eligible to the
reduced rate. Source:
Direct Gestion.
-
Property
Taxes in Paris: A Key Benefit: Property-related taxes are
still lower in Paris than anywhere else in France. On average
such taxes are half than the national average. The “taxe d’habitation” (calculated based
net taxable income) is 10.99% in Paris versus 19.89% on average.
The “taxe
foncière” is 7.11% in Paris
versus 17.6% on average. Source: Direct Gestion.
-
The
De Robien Law: There is currently a huge shortage of rental
units in Paris as well as in many major cities in France. Under
the “De Robien” law, landlords can amortize their real
estate investment on a 15-year schedule up to 65% of the total
amount invested. During the first 5 years that follow a purchase
8% of the property price may be amortized (for income tax
purpose). Source: Direct Gestion.
INTEREST
RATES AND CURRENCIES
-
Residential
Mortgage Interest Rates: Still significantly lower than in
the UK and the US. 20-year fixed rate: 4.7% and 20-year
variable-rate: 3.75%. Source: B.I.P. Investments Limited.
-
US
Dollar / Euro Exchange Rate: “After remaining relatively
stable in October and weakening slightly in November 2003, the
euro rebounded strongly in nominal effective term. This
strengthening broadly continued throughout December
and in the first half of 2004 against the backdrop of a
broad-based US dollar decline”. Source: European
Central Bank January Bulletin.
INTERNATIONAL
SECTION
-
Property
Prices in Paris and other European Cities: The average
property price in Paris is 220,000 euros. This remains
significantly lower than London (389,000 euros), Dublin (285,000
euros), Luxembourg (420,000 euros), Madrid (280,000 euros), and
Berne (400,000 euros). Source:
Direct Gestion.
-
Canada:
Low Interest Keeps real Estate in Good Shape: “2003 was
good, perhaps exceptionally good for the Canadian real estate
market. Housing starts reached their 14-year high with almost
220,000 starts and the average residential prices increased by
almost 10%. The main two factors that determined the ultimate
market scores were the good macro-economic news and the low
mortgage rates. These factors are expected to play a major role
in keeping the market in relatively good shape during 2004
although many experts are cautious of predicting another record
year. Source: International Real Estate Digest.
-
Hungary:
Still Defying Gravity: “The real estate in Hungary in the
last year has continued its healthy push up, defying the gravity
as we have predicted here and here. With average residential
prices of $800-$1,300/sqm the capital city Budapest is counting
down the years of reaching the average price level of EU
countries. The prices in the rest of the country so far lag
behind, but are expected to move up soon after Hungary become EU
member in May 2004”. Source: International Real Estate
Digest.
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