Real estate market report – Nice to Menton Riviera sector
The combined factors of Brexit and Covid-19 have caused major shifts in the mid-luxury sector, which is now visibly filtering down to the more accessible end of the market. It can quite clearly be defined as a seller’s market, and this must be factored in to the decision-making process by both sellers and buyers.
Before the effects of Brexit could be clearly defined, the arrival in early 2020 of Covid became the dominant disrupting factor. International buyers all but disappeared over night, and of course many sellers decided to delay the marketing of their property. In the initial French lockdown, viewings were effectively forbidden and notaire’s (conveyancing solicitors) offices were severely constrained in their operation – most transactions already in the system were significantly delayed and very few new transactions were taken on.
However as the summer of 2020 arrived, some international buyers – traditionally a major force on the Riviera – did take advantage of the brief respite and there was a brief spike in activity. However, the most obvious shift was regarding domestic – French – buyers. As if sensing a vacuum left by the absence of the overseas clients, French buyers started to become much more active. This may have been driven by a desire to leave the cities for more relaxed or convivial climes, or simply the desire to realise long held dreams or ambitions. Some parts of rural France – those more conveniently accessed by mainland European buyers including UK clients – saw an immediate uplift in activity, but the Riviera is significantly more dependent on air travel, and with Nice airport practically shut down for the period, the local market did not immediately follow the same pattern.
The effect of this shift was that the market actually moved up a gear, defying many predictions. The continued availability of cheap credit, combined with reduced competition from overseas clients meant that local property developers became the dominant buyers for any properties that required work or presented the opportunity for development – for example villas where the size of the land allows expansion of the footprint, or apartments in need of significant redecoration or remodelling.
This trend continued on through 2021 and in fact intensified as domestic Covid restrictions relaxed but conversely travel restrictions and lack of available flights meant that overseas buyers stayed out. Many international travellers were still concerned about flying, due to the draconian test and quarantine rules, combined with the accompanying uncertainty (what if I catch Covid whilst abroad?).
Leggett Immobilier, the largest international agency in France, reported sharp rises in turnover for the whole of France (total sale fees billed) during the period: 2019 €15.8m – 2020 €18.9m – 2021 €26.4m (with €30m forecast for ’22) whilst simultaneously seeing a major demographic shift away from their traditional Anglophone buyers. In 2019 the ratio of French to international was 45:55 moving to approximately 50:50 in 2020 and to 59:41 in 2021, in other words a complete reversal of traditional buyer profiles.
The effect of this market activity was not just the obvious increase in property prices due to the rebalancing of supply and demand, but more interestingly the increase in the percentage of asking price achieved at point of sale. The French property market has always had a greater built-in latency than the UK market, due to the slower speed of recorded sales making comparison more challenging, and perhaps a traditional scepticism towards real estate agencies – nearly 40% of property sales are transacted in France without the involvement of an estate agency. This means sellers are potentially more prone to random pricing decisions than where professional advisors are involved. In effect, many sellers’ asking price is based on whim rather than professional guidance. However, during the period 2019-2022 the percentage of asking price achieved has gone from 75% to 92%, a significant uplift.
The gradual shift in buyer profile from amateur/private buyers to a market dominated by professionals – property developers – is creating competition amongst buyers. Effectively, where a private buyer can potentially delay a purchasing decision – continue to rent for example, or wait for the market to slow and prices to drop, the professionals are under pressure to find the next project in order to meet profit targets and keep their borrowing facilities in place. Professional buyers are often able to move faster, have better local knowledge and contacts with mairies, builders, architects and real estate agencies, and crucially, they are often prepared to outbid or are able to out-manoeuvre private buyers.
This increased competition in the market place is also having an effect on the behaviour of both buyers and sellers, with sellers often receiving several simultaneous offers. Inevitably some bad behaviour will be more prevalent during such a ‘hot’ market, with desperate buyers being more inclined to stretch their moral compass in order to achieve their objective. This of course lends support to the argument that by engaging the services of a good professional to help navigate the sometimes complex legal and administrative/technical challenges, buyers are less likely to fall foul of unethical or undesirable behaviour.
With the return of international – and particularly UK – buyers expected in 2022, we are still waiting to see the real effect of Brexit on both sellers and buyers. The industry is also expecting a significant uplift in sales with the return of international travel and the release of so-called ‘pent-up demand’. Adding this into an already highly charged market is sure to make for some interesting challenges for industry professionals, with many agencies in the sector struggling to find stock to supply the demand.
Although buyers may initially be hesitant to buy during a period of sharply rising prices, there is a slightly counter-intuitive argument that suggests that it is more appealing to purchase during a period of rising prices rather than falling prices – effectively, it is more reassuring to know that the property will increase in value in the short to medium term than decrease. This provides a counter balance to any concerns about the increase in property prices or the necessity to bid closer to the asking price than in previous periods. Of course as prices continue to look as if they are on the rise, this continues to draw in commercial developers, who visualise strong short-term gain – fuelling the cycle.