Is it time to look at French prime property investment?

While it would be foolish to suggest that the French economy is over the worst, despite confirmation this week that the economy is back in the “growth zone”, there are signs of growing interest in prime properties across France. Whether or not we have seen the bottom of the French real estate market remains to be seen but it is encouraging to see an increase in actual transactions and viewings before a real turn in the French economy. However, if the economy is not really back on the “straight and narrow” is it risky to invest in the French real estate market at this point in the cycle?

A recent report by Knight Frank has confirmed a 28% increase in the number of people applying to acquire prime property although, perhaps more interestingly, there has been a 52% increase in viewing numbers over the last 12 years. This would seem to indicate that the French prime real estate market is going against the economy although further investigation seems to indicate it very much depends on the area in question and the price.

Overseas investors taking advantage of currency situation

While France is obviously tied to the Euro, which has been weak for some time now, this has exacerbated the relative fall in French property prices for those holding sterling and dollars ready for investment. As a consequence the increased buying power of sterling/dollar investors together with the natural fall in French prime property prices during the ongoing Euro crisis has created something of a “once-in-a-lifetime” situation. There could also be a “double whammy” if, as many expect, we see a long term recovery in Europe, with those exchanging their dollar/pound into euros to acquire French property also benefiting when they convert back in the future assuming that the Euro and French property prices do recover in relative terms.

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It is also worth noting that France has been the most popular tourist destination within Europe for many years now and as a consequence has a very strong flow of international real estate investors. Whether expats are looking to move lock stock and barrel to begin a new life in France, or perhaps looking for a second home, there has been constant demand even during these difficult financial times. The ongoing austerity measures introduced by the French government are hitting home, have caused problems within the French voting public but ultimately (as we are starting to see in the UK) they are having a positive impact in relation to long-term economic prospects.

Is it worth looking towards euro denominated real estate?

There is no doubt that sterling and the US dollar have benefited from the ongoing difficulties of the euro and when you also take into account the natural fall in property prices across Europe there is potentially a win/win situation. As we touched on above, there is every chance that sterling and US dollar investors acquiring euro denominated properties in the short term could benefit from the eventual recovery in the Euro and European real estate prices. This is unlikely to happen in the short term but those with a long-term investment horizon, such as pension funds, it may well be worth taking a further look while also taking into account your individual circumstances.