8 reasons to invest in luxury real estate in Paris

8 reasons to invest in luxury real estate in Paris
8 reasons to invest in luxury real estate in Paris

Summary

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In a study conducted by Ikory, it appears that the French capital is unable to compete with London or New York in very high-end real estate. This can be explained by the predominance of small spaces. Regarding the Champs Elysées, Notre Dame, and Odéon neighbourhoods, foreign nationals only represent 15% of transactions, compared with 49% in Prime Central London and 69% in new property in Prime Central London. Yet, the City of Light is quite full of charm, with its fashion shops, rich local culture and low prices, not to mention a number of head offices and a well-trained workforce. Although the competition is fierce to attract High Net Worth Individuals (HNIs), investing in luxury real estate in Paris seems promising as long as it is done the right way.

1) Scarcity of the properties

Ikory, a company specialising in property valuation (residential assets, conversion of offices into hotels), believes that scarcity is one of the criteria that makes a property exceptional.
Restriction mechanically influences the effect of scarcity, such as natural configuration (Manhattan, Monaco) or urban regulations in Paris (heritage protection areas). Paris is one of the rare major capitals in the world where the construction of new luxury properties is virtually impossible.

2) Real estate prices within the global average

A property falls into the very high-end segment starting from a price that varies according to the areas.

Real Estate prices

Paris remains relatively affordable internationally. According to Barnes, luxury real estate is between €15,000 and €25,000 per square metre in Paris compared with €30,000 and €70,000 in London or New York.
A sign of the times, Ikory reports that prices for central Paris have stalled in recent years compared with Manhattan and Inner London, especially compared with London’s top districts (Kensington, Chelsea, and Westminster).
Some cities are also benefiting strongly from the momentum of the local economy (Silicon Valley, Dublin recently) and the fact that English is the official language there..

3) An economic center

Paris currently ranks seventh in the world among cities that matter most for millionaires. Cities were ranked according to business relations, economic activity, and leisure offerings and the French capital came in behind London, NYC, Hong Kong, Singapore, Shanghai, and Miami.
No cities in Germany stand out, as this country is adversely affected by an ageing population. For Ikory, Paris has true potential, particularly given its high cultural and economic offering. A city like London depends heavily on a single industry, finance, and cycle reversals can be brutal.

4) A growing number of potential investors

From 2009 to 2014, the number of millionaires (holders of more than $1 million in assets excluding real estate) grew 46%, according to the Cap Gemini Wealth Report.
The Crédit Suisse Research Institute even believes that the number of millionaires (in $) will jump 46% by 2020 to 49.3 million people worldwide. In other words, there will be six new millionaires per second over the next five years. In Africa, the number of millionaires is expected to increase by 73%.

5) A client base that loves brick and mortar

According to a study published in June by Savills and WealthBriefing, which surveyed wealth managers and private bankers on the intentions of their clients, 91% of the ultra-rich in the world wish to maintain or increase their real estate investments in the next five years.


invest in luxury real estate paris

Other surveys have the same findings:

  • Some investors, who had wagered too much on the United States before the outbreak of the subprime crisis, are seeking quality properties in the Old Continent.
  • Many wealthy individuals under age 35, often a result of the New Economy, wish to build up a property portfolio which is in line with their lifestyle and respectful of the environment. According to a Coldwell Banker survey published in May, 69% of US HNW millennials were considering a purchase in the next year.
  • Around 12% of ultra-rich people from emerging countries live outside their country. This number will grow in the coming years, according to Wealth-X and Sotheby’s International Realty. The reasons include doing business locally, having a tangible asset, and wanting to diversify.

6) A creditworthy client base

Some of the wealthiest individuals pay in cash, making it possible to avoid the condition precedent of a loan granted by a bank. For others, rates are exceptionally low. The majority of wealthy clients who wish to use credit do so for tax optimisation purposes or to take advantage of exceptional rate conditions. Quite often, when such clients use “comfort credit”, they agree not to use the condition precedent of financing.

7) Don’t forget French clients, top buyers of luxury properties in Paris

According to Ikory, between October 2014 and September 2015, Paris had 288 transactions exceeding €2.5 million, i.e., less than 1% of the market. Although the share of foreign nationals in these transactions increases as prices rise, the French still remain the top buyers of luxury properties in Paris.

Number of transactions in Paris 

8) Good timing

  • Today, Middle Eastern and American foreign buyers are benefiting from the stronger dollar.
  • According to Charles-Marie Jottras, chairman of Daniel Feau, the purchasing power of Americans in Paris will increase by 35% to 40% over the next three years, if the effects of decreased Paris prices, sharply lower rates and the euro are combined.
  • Gulf countries are over-represented on properties valued at more than €5 million, a phenomenon undoubtedly tied to problems in the Mediterranean region. Despite the recent attacks, their desire to invest in Paris continues unabated according to Féau Immobilier.
  • HNW individuals from emerging countries wish to protect themselves from fluctuations in financial markets and political instability in their countries.

So, how do you get started? Although the luxury market in Paris has great potential, certain points must be taken into account.

Specific demand

Location remains a fundamental factor, but keep in mind that millionaires want a property:

  • where they can move in without needing to do anything; they do not want to manage work from abroad
  • sold furnished and designed by renowned architects and decorators, high-end fixtures, insulation, etc.
  • offering a wide range of services (concierge, private spa, parking, security)
  • hi-tech (home automation, air conditioning, sound system in every room, home theatre, etc.)

Establishing a renovation budget

For a property intended to undergo luxury renovations, the work can quickly exceed €2,000 per sq. m, especially for high-grade materials like marble. In Paris, foreigners are also mindful of common areas. Some sellers do not hesitate to redo them at their own expense, like repainting or replacing worn stair carpet.

Selecting the right intermediaries

  • Choose contractors or delegate the work
  • Work with real estate agents who are familiar with Paris, discreet, and well versed in cultural differences.
  • If credit is used, offer the services of a broker able to work in multiple languages.