15/06/2015Barnes
Perspective

Update on the international high-end real estate - May 2015

1/ The French investment abroad

Exports and French investment abroad continued to strengthen in 2015. The French (young graduates, executives, wealthy families, entrepreneurs and traders ...) are now convinced that their professional future will be brighter abroad that 'France and that their investments there will obviously be more profitable.

  • In Brussels, Barnes made 15 transactions since early 2015, in which 2/3 of them were with French clients. Recently, we have seen that many French citizens living in Brussels sell their residential rental property in France to invest on site (exemption from tax on property income) or in other international cities (London, New York, Miami ...)

immobilier-international-haut-de-gamme-bruxelles

  • In Lisbon, , in addition to small private investors looking for rental investments (season), we support ten big investors 'family offices' or investment funds that buy block buildings in the old Lisbon and neighborhoods Boundary as Greektown. Many households choose Portugal for retirement and benefit from a tax exemption on income for 10 years. In addition to their primary residence, most take the opportunity to make real estate investments locally including selling their real estate assets in France.
  • In Tel-Aviv, since the beginning of the year, BARNES  serviced a dozen customers,  the majority of which, in addition to the acquisition of their primary residence, have the intent to carry out a rental investment. There are three types of clients:

  • Young executives (French, Swiss, Belgian and English) who settled in central Tel Aviv and plan to work especially in new technologies. They are seeking, within their means, rental or apartment for sale whose budgets range between € 300/400 000,
  • Wealthy families who decide midlife settling continuing to manage their affairs in the world since Israel and who make international property investment premium in parallel, 
  • Entrepreneurs who are mainly first-time investors and gradually transfer their business and projects to Israel
  • Retirees from all social categories with different budgets according to their needs. For the most part they look for 3/4  rooms in Tel Aviv or in the periphery (Bat-Yam, Ramat-gan).

More than 60% of transactions on new programs in the best neighborhoods of Tel Aviv are foreign. In May 2015, BARNES notably accompanied a French client already installed in Israel for six months in the acquisition of 18 small apartments (between 50 and 70 sqm) in a new program for investment. The international real estate market premium is very dynamic with many new quality programs.

  • In Switzerland notably in Geneva, the French newcomers are becoming increasingly more rare since mid-2014. The loss of attractiveness of Switzerland with respect to international customers including the French is mainly due to:
    • the undermining of the tax package that was finally retained but revised upwards (taxation based on income equal to 7 times the rental value instead of 4 times)
    • The increase in the Swiss Franc which is now at parity with the Euro,
    • The Federal Council to revise sharply upwards the project almost nonexistent inheritance in Switzerland
    • The abandonment of banking secrecy, which automatically resulted in a loss of anonymity for affluent families wanting to invest and / or settle in Switzerland.

We are currently witnessing transfers of French residents in Switzerland who decide to settle in Brussels, London or Portugal.

In this context, prices have fallen by 20 to 25% since 2012. Despite this decline, prices remain much higher in France than in Switzerland for high-end goods that are traded in uptown between 15 000 and 30 € 000 per sqm.

  • In London where the French are traditionally very present (400,000 registered in the French Consulate in 2014 and an estimate of about 500,000 French habitants), we see that the flow has not stopped. Since 2012, the French expatriate no longer has a provisional implementation project but rather is part of a long-term perspective. Most French buyers begin with renting their primary residence and making the acquisition only after selling part of their real estate assets in France. So long as the French don’t emigrate as they’ve done so in the past, funding from various private companies will continue to be poured into the financing and implementation of French-associated infrastructure (French high-schools, colleges, schools and nurseries). The last elections in favor of conservatives reassure the international upscale clientele, including French. Project 'mansion tax' (taxation of all persons possessing property worth over £ 2M) and rent control have been permanently excluded.

The new phenomenon (for about 2 years): the explosion of French 'pure investors' acquiring 'buy to let' apartments to be rented. They realize these acquisitions in the context of arbitration, which leads them to sell their rental property in France, mainly for the following reasons:

  • No property tax,
  • Rental Income tax from 18 to 20% (a foreign owner with only the rental income is not subject to this tax)
  • Owners much more protected in France with a nonexistent rental risk,
  • Real Estate in London, the first international real estate up high-end, is the safe value par excellence. Prices are steadily growing for 20 years.

Immobilier international haut de gamme New York

  • In the United States BARNES accompanied four types of clients
    1. European investors notably the French, that sold their properties in France and prefer to manage their real estate investments locally, usually due to the following reasons:

      • The acquisition in company allows not to be subjected to wealth tax or the taxation on income (amortization of property, the deduction of all expenses and loan interest offset ... ample amount of income)
      • The owners are much more protected in France with a total lack of rental risk
      • Deferral of taxation on capital gain of the sale if the proceeds of the sale are reinvested in the United States within six months
      • Profitability:from 3 to 5% with relatively low interest rates (between 3 and 4%)
      • The US economy has been steadily growing
    1. An active youth who go abroad in European or American companies. They no longer hesitate, as they would before, to acquire their residence because they mostly believe in long-term installation. They favor the education of their children, including at university level, in the USA.  Also, to achieve the American dream, they are usually ready to make significant sacrifices, particularly in terms of salary.
    1. Entrepreneurs and traders: For 2 years now, and particularly since the beginning of the year, there’s been a steady stream of entrepreneurs who have sold their company in France to carry out new projects in the USA, or merchants (restaurants , hairdressers, bakers ...) that after selling their trade in France, invest in their activities to launch new businesses in the USA.
    2. Pensioners and /or young retirees who settled in the US after yielding companies and/or real estate assets in France. Some arrive with their kids, who for the most part are teenagers, with hopes of letting them finish their studies in the USA

In this context, the high-end real estate market is a real safe bet in the United States:

  • In New York, prices are now twice as high as in Paris (while New York was 20% cheaper than Paris in 2009)
  • In Miami, after the 2007/2011 crisis, the market rebounded strongly with prices doubling in 4 years. The high range of conventional goods are trading around € 8,000 per sqm,
  • In Los Angeles, the recovery is also supported for 3 years with prices for conventional high-end properties around € 12,000 sqm.

All these French foreigners are share the realization that the quality of life in the United States no longer has anything to do with that of France’s. It is interesting to note that in New York, a well-established international city, 85% of transactions in excess of € 5 million are made by Americans, while 85% of transactions over € 5m in Paris are made by foreigners. Indeed, Americans retain the leadership as the population with the highest purchasing power.

2/ Investment by foreigners in France

Wealthy foreigners benefiting from the weaker euro and the impoverishment of the population have been taking advantage and going “real estate shopping runs” due to the low prices in France. Luxury real estate has risen sharply for the last five years in all international markets (international cities and places of upscale resort) with the exception of France and Switzerland. During this five-year period, prices have even fallen sharply in France for secondary homes located in the main resort areas (-15 to -50% in 5 years) and Paris (-5% to -20% depending property since 2012).

Since Q4 2014, there is a massive influx of foreigners in France, in Paris and in the main places of international resorts such as Megeve or Saint-Tropez.

immobilier-international-haut-de-gamme-paris

The purchasers' nationalities are: :

- 5 Americans
- 3 Asians, including 2 Chinese
- 3 British,
- 2 Swiss,
- 2 Belgians,
- 2 South Americans
- A Lebanese
- A Japanese
- 2 customers in the Middle East
- 2 Guest Country East
- a Tunisian, an Italian, an Egyptian, a Moroccan and a German

In their research, foreigners prefer the following criteria:

- District: Saint-Germain-des-Prés, the Golden Triangle and / or typical Parisian districts such as Montmartre or the Marais - Dwelling: Any view of park and garden, overlooking the Seine, view monuments - Apartment with high renovation contemporary range and preferably furnished or fitted - Surface sought: from 80 m² to 300 m² - Destination: generally to earth-foot wear

For this type of property called 'international', foreigners find that Paris is much more affordable than the major international capital cities (London, New York ...) with prices between € 15,000 and € 25,000 per m² vs € 30,000 to € 70,000 per m² in London or New York.

Note that we also support three Anglo-Saxon funds, looking to gain to Paris.

Some examples of recent transactions by BARNES:

  • A French-Moroccan customer purchased an apartment around € 6M left bank
  • A Hungarian: a home> 10M € in 16th district
  • A prince of the Middle East: an HP> € 15 avenue Foch
  • An Asian family acquired a mansion in the Villa Montmorency
  • A French-American family from New York acquired a mansion in the Invalides district around € 17M
  • A New York, renowned in the world of fashion, bought an apartment on the banks of the Seine around € 7M

he dynamics of the Parisian market is left high way (BARNES results in H1 2015: net sales trend - promises - + 40% vs n-1) through:

  • The readjustment of prices down by selling owners
  • The level of prices in Paris vs London and New York now makes particularly attractive Paris
  • Nearly euro / dollar and euro / Swiss franc who recently gave a small boost
  • The demand begins to exceed supply in some segments:
    • Apartment located on a high floor with views and <200m²

Allowing this type of goods to sell them fast enough (a few days) to thinly traded price when the market price.

  • Evolution segments in BARNES, number of sales agreements from January to May 2015 vs 2014:
    • <1M €: + 100%
    • 1M<<2M€ : +38%
    • > 2M€ : +50%

immobilier-international-haut-de-gamme-megeve

  • In Megève, the market returned to strong activity, especially on chalets whose prices range between €3M and € 5M.

The main search criteria are:

  • New chalet
  • 5 bedroom
  • pool
  • relaxation area, spa, cinema ... 

The clientele consists 60% of French and 40% foreigners (English, Swiss, Belgian and East-country nationals)

New: more and more Polish billionaires are buying in Megève

Why buy Megève:

  • No seasonality,
  • resort living all year
  • Quality of Life
  • Quality of food
  • Safety
  • Tranquility

Its buyer profile: families looking discretion.

We note that there is no significant market decline. The price for high-end goods is between € 10,000 and € 18,000 per square meter

  • In Saint Tropez, the market finds color for about six months and foreign customers, especially Anglo-Saxon comeback.

  • Number of Transactions: beyond € 1 million, 22 transactions (including 8 French, 5 Americans, 2 to 3 Belgians 2-3 English but not Russian) for every St Tropez since 1 January (27 since 1 December 2014).

  • Such recipients:
  • For 6 months 60% foreigners (more Russians) to 40% of French,
  • 18 months ago: 60% Russians, 20% French and 20% foreigners.

  • Types of vendors:
  • 1/3 French promoters
  • 1/3 European (large proportion of French),
  • International 1/3.
  • Rumor Russians who sell to Saint Tropez is false. A single sale of a Russian in three years.

  • Price: erosion of 30% since 2008/2009 values ​​(gentle slope of 5% / year, no sudden drop). Applications from 6 to 12M € representing 80% of applications. The French buy the cheapest goods (from € 3m).

  • Search Types: French: wish to be seen abroad: more discreet.

  • Taxation: new phenomenon, the French customers buy as a primary residence.