French Riviera Residential Market

French Riviera Residential Market
 
The Residential Markets of the French Riviera

8 July 2015, by Paul Tostevin

Suppressed prices, a weak euro and recent changes to taxation policy have made property in the region more appealing to foreign purchasers.

 

France

The French residential market proved resilient in the years immediately following the global financial crisis. Relatively modest price falls (compared to those in some European countries) of 9.7% were seen between 2008 and 2009. A period of recovery quickly followed, and by 2011 prices and transaction levels had once again exceeded their 2007 highs.

This recovery proved short lived, and the last three years has seen suppressed transaction volumes and sliding prices, set against a faltering Eurozone economy and rising national unemployment. As at December 2014, prices in France were 8.1% down on their Q3 2011 high, while transactions stood 14.6% down over the same period (Figure 7). Record-low mortgage rates have helped improve market liquidity in the mainstream markets of late, and it is low interest rates that will keep any further falls modest in 2015.

FIGURE 7

France market performance 2006-2015

 
Figure 7

Source: INSEE, CGEDD

Provence-Alpes- Côte d'Azur

The French Riviera is located within Provence-Alpes-Côte d’Azur, the third richest of France’s 27 regions. This region consistently commands the country’s highest house prices, and second highest apartment prices (behind the Paris region). An important global tourist market, some 17% of properties here are second homes or occasional accommodation, compared to 11% nationally.

Like the rest of France, prices have fallen in Provence-Alpes-Côte d’Azur and the market is a buyers’ one. Regional figures from the INSEE suggest prices continue to slide. Values in the region have tracked the national average closely, and are down 9.5% from a 2011 high. The market did not see the same rally between 2009 and 2011 as that experienced in Paris, so values currently look better value than those in the French capital.

Government rhetoric and negative media coverage around the taxation of wealth, coupled with a faltering domestic economy has slowed activity across the Riviera's prime markets. The number of €3m+ deals fell by 44% across the region between 2007 and 2013. Cap Ferrat and St Tropez, home to the Riviera’s largest prime markets, saw the sharpest declines (down 69% and 54% respectively). Although transaction numbers are down, purchasers of the region’s best properties tend to hold for long periods, with low gearing (these homes are viewed as a store of wealth) so forced sales are rare and, as a consequence, there is no mechanism for prices to fall substantially. Property in the French Riviera for most is viewed as an asset with long-term appeal and therefore a safe store of wealth.

 

 
Smaller, higher yielding units in Nice have gained favour with investors

Sub-markets

Regional statistics disguise local market characteristics. What sets the French Riviera apart is extremely limited supply in the most desirable spots. In Saint-Jean-Cap-Ferrat, a peninsula of land east of Nice, there are around 500 properties and only a handful come onto the market in any single year. Supply is kept low and prices high by wealthy buyers who hold for long periods and are not generally forced to sell.

Cap-d’Ail, Beausoleil, Roquebrune- Cap-Martin adjoin Monaco and have benefited from the surge in activity that the Principality’s residential markets have experienced. Significantly cheaper prime property is available here (albeit without the tax benefits). The area has proved popular with buyers who want quick access to the city-state at a discounted price.

St Tropez is another small, highly exclusive sub-market in the region (see map) and has seen strong buyer interest in the last year. St Tropez offers prime property on large plots of land suited to redevelopment. Strict planning regulations enforce a generous plot to dwelling ratio, helping to retain a sense of spaciousness.

Buyer profiles

Russian buyers have historically been active in the Riviera’s super-prime markets, accounting for 30% of purchasers between 2011 and 2014 (Figure 8).

FIGURE 8

Prime Riviera purchaser profile 2011-2014

 
Figure 8

Source: Savills World Research

They have been especially attracted to Cap Ferrat, where they have accounted for 67% of purchasers. Russians have also proved to be among the biggest spenders (Figure 9), second only to Middle Eastern buyers. Recent Russian activity has slowed considerably as economic sanctions restrict these buyers’ international ambition. By contrast, geopolitical tension in the Middle East has led more wealthy individuals to choose a Riviera home alongside a London or Paris property. St Tropez, by contrast, is a far more domestic market. Even at the top end of the market, 44% of purchasers are French.

FIGURE 9

Top spenders in prime Riviera property (average spend)

 
Figure 9

Although the market remains cautious, an improving tax environment for non-domestic buyers, coupled with a weak euro, now presents buying opportunities. For US dollar and Sterling denominated purchasers, a weak euro cheapens real estate. A €2m property cost US dollar buyers $2.18m in June 2015, compared to $2.72m a year before. In dollar terms, this is a reduction of 22%. The same €2m property to a British sterling buyer cost £1.44m in June 2015, compared to £1.65m the year prior, a reduction of 12%.

Investment opportunities

While the Riviera offers some world class ‘trophy’ properties, the prime properties of the region’s cities are growing in appeal for those seeking an investment opportunity. Cannes has a global reputation as a centre of film, culture and entertainment with its annual festivals. Prime property here is cheaper than the ‘Caps’ and short-term lettings are in high demand. Buyers can benefit from dual-use property with rental potential during events and festivals, or may seek to let out full time for an income stream.

The expansion of tourism, driven by improved connections across Europe via low-cost airlines and the new Eurostar rail services between London and Marseille, has had the effect of expanding the second home market into lower price points for non-domestic buyers in the region. Smaller, higher yielding units in Nice, for example, have gained favour with investors attracted by depressed sales prices but stable rents.

In the super-prime markets, yields are negligible, but there exists demand for short-term rentals in the best spots. It is possible to cover running costs by letting out such properties for just a few weeks of the year. The Middle East market, which favours the Riviera as a summer season destination, is an important driver here.

Unlike Spanish, Portuguese or even some Italian resorts, new development opportunities on the Riviera coast are extremely limited. This helps keep supply levels extremely low. Some developers have taken advantage of weaker market conditions to buy up existing properties on large plots and subdivide into smaller, multiple units where permitted.

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Key Contacts

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883

 

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899