PARIS

Plus ça change, plus c'est la même chose...

For a city, Paris is amazingly consistent, both when it comes to preserving its patrimony, to being in the avant garde of art, style and fashion, and alas, to keeping prices for its singular treasures always on the upward slope.

A year ago we noted that in the fall of 2009 real estate prices had abandoned the plateau reached when recessionary times began in late 2007-early 2008, and were once again trending upward. We went on to predict that prices would continue to rebound in 2010. Because of the upward price trend, we predicted that the door of opportunity was fast closing and that the wise buyer eager to acquire an apartment in Paris should act quickly,

We deserve no special commendation for predicting that prices would rise in 2010, as any real estate professional could see that coming. For predicting that the door of opportunity was closing, we deserve an A, but missed an A+ by not realizing how fast the door would close. More appropriate would have been to say that prices would "skyrocket," "go through the roof," or "break all records," to borrow some expressions currently in vogue with the French real estate press.

With the figures just in from the Paris notaires association, the most recent tally shows that in the fourth trimester of 2010, the average sale price of a Paris apartment showed a gain of 17.5% over the same period a year earlier.

This rise refers to the average price for sales in all of Paris' 20 arrondissements. Various quartiers favored by foreign buyers outperformed the average. Not unexpectedly, the 6th arrondissement (the heart of the St.-Germain quarter) surged ahead, as did the 7th (Invalides, Champs de Mars) and 4th (Marais, Ile St.-Louis) arrondissements.

The notaires' report was substantiated in a March 30 New York Times account of the Paris real estate phenomenon (click here to read the article). We felt the article correctly conveyed what is going on now in the Paris market, although we found their top per square meter figure for an apartment in St.Germain - 25,000 €- to be a little exaggerated. The fact is, however, that the buyer seeking a tastefully renovated apartment in this quartier easily can expect to pay 20,000 € or more per square metre for an apartment in a quality building with elevator on a quiet residential street.

Theoretically, the price increase reported by the notaires means that the buyer who acquired an apartment for 1,000,000 € in the fall of 2009 has a property that could be sold now (and sold easily in a market with an abundance of eager buyers) for 1,175,000 €. Even with notaire fees at 7% and the 33.33% capital gains tax on non-EU residents, that's a gain of around 47,000 € in one year on a virtually risk-free 1,000,000 € investment. This does not even take potential rental revenues into consideration. Let us again remember that the 17.5% figure is an average for all arrondissements; in the prime quartiers the rise has been even higher. Thus after only one year the after-tax return on investment is substantial. Not to be overlooked is the fact that it comes with free lodging in the world's most dazzling city.

Predictions for 2011: Continued rise in prices

In their report, Paris notaires said they expected to see a continued rise in prices, followed by a period of stabilization toward the end of the year. We think this is wishful thinking on their part. Our bet is that they make this prediction simply out of the belief that the current maddening pace simply cannot go on, and thus some correction is inevitable.

Just France Sales might agree if one could reasonably anticipate a falloff in demand for quality apartments, or a surge in the quantity of such apartments. The first is highly unlikely, and the second—to the immense chagrin of Paris real estate professionals aggrieved by their lack of product—does not appear to be even remotely on the horizon.

Is this stratospheric rise just the beginning of a bubble, a dramatic collapse that in two or three years will humble owners and force them to sell at fire-sale prices?

Not likely. The fire-sale notion is a pipe dream of buyers who think they are smarter than the market, and meanwhile year after year pass up opportunity after opportunity year as they continue to dwell in this fantasy.

Paris prices have increased steadily since the mid-1940s. Other great cities—notably New York and London—experienced significant price dips in 2008 and 2009, and New York is still struggling to recover.

Not so in Paris. Prices leveled off here during the recessionary period, and indeed declined slightly in some of the less desirable arrondissements. Instead of selling in days apartments sat on the market for weeks, at which point they sold at small discounts or were withdrawn by owners who knew better times were just around the corner. But prices never crashed, or even declined significantly in the beaux quartiers sought after by foreign buyers.

Is Paris still affordable?

Affordability is of course is a relative question that a buyer answers according to individual circumstances. But for those who have the means to acquire a property in Paris, and thereby get into the market and take their seat on a train that for decades has been surging relentlessly forward, all indications are that the upward pressure on prices will continue, making a quality Paris apartment in a good location an investment opportunity that far surpasses many others available on the global market.

THE PROVINCES

Agents report an increase in American buyers in Provence and English buyers in the Southwest. There are exceptional second-home bargains available in both regions, as exemplified by our jewel-like little three-bedroom house near Gordes (430,000 €), and a majestic 18th-century manor house in Dordogne (980,000 €).

The outlook is increasingly bright in the provinces, and we predict sales will be brisker and prices will firm up in 2011. However, some time will pass before a return to the halcyon days of the mid-2000s, when English-speaking buyers counted for a substantial percentage of second-home buyers in the more touristic regions of the South of France.

Brokers report that the most sought-after properties in 2011 were small newly constructed homes bought by French families relocating from other parts of the country. The best bargains, they say, are in luxury homes or venerable older properties that have been renovated—good news for the buyer seeking a second home in a popular region in the South of France.

FINANCING

Meanwhile the application process has become easier and more efficient than ever. The time required to obtain advance approval for a mortgage has dropped, which is a big advantage for buyers who want to maximize their bargaining power by presenting an offer along with a bank letter showing the sale does not have to be conditioned on approval of financing. The three banks with which JFS works principally are able to issue a pre-approval for a specific amount within 10 days or fewer of application. Borrowers with strong credit are assured of approval. Borrowers who seek a mortgage that will not be fully paid by borrower's 75th birthday may face slightly higher rates.

Mortgage application procedures are simple: an application form, proof of address of your primary domicile (a couple utility bills will do), two or three years of federal tax returns (they do not have to be translated), and sometimes a statement from your bank giving an overview of your financial situation and existing financial obligations. Depending on your age, your doctor may have to fill out a medical exam form, as French mortgages require life insurance.