Prime listing prices in the world’s most expensive cities are cooling which means that wealthy listing investors could look increasingly to other cities and leisure hotspots such as the French Riviera, new research suggests.
While in France as a whole listing prices and sales in the last three years have fallen the Riviera is still a magnet for wealthy buyers. Indeed, the area that stretches from St Tropez in the south west to the border of Italy is the third richest region in France.
While prices in France overall were down 8.1% as of December 2014 compared their peak in the third quarter of 2011, the Provence-Alpes-Côte d’Azur (PACA) region consistently commands the country’s highest house prices and the second highest apartment prices behind the Paris region.
The latest French Riviera residential market report from international real estate firm Savills also points out that it is an important global tourist market where some 17% of listings are second homes or occasional accommodation, compared to 11% nationally.
The analysis points out that like the rest of France, prices have fallen in PACA and the market is a buyers’ one. 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,’ the report says, adding that 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 €3 million plus 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 listings tend to hold for long periods, with low gearing as 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,’ the report explains.
It also points out that listing in the French Riviera for most is viewed as an asset with long term appeal and therefore a safe store of wealth and 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 listings 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,’ the report says.
‘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 listing 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,’ it adds.
St Tropez is another small, highly exclusive sub-market in the region and the report says it has seen strong buyer interest in the last year. St Tropez offers prime listing 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.
The report also explains the buyer profiles in the region. Russian buyers have historically been active in the Riviera’s super prime markets, accounting for 30% of buyers between 2011 and 2014. 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, second only to Middle Eastern buyers. But 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 listing.
The report explains that in contrast St Tropez is a far more domestic market. Even at the top end of the market, some 44% of purchasers are French.
Although the market remains cautious, the report says that an improving tax environment for non-domestic buyers, coupled with a weak euro, now presents buying opportunities. For US dollar and Sterling denominated buyers, a weak euro cheapens real estate.
For example, a €2 million listing cost US dollar buyers $2.18 million in June 2015, compared to $2.72 million a year before. In dollar terms, this is a reduction of 22%. The same
€2 million listing to a British sterling buyer cost £1.44 million in June 2015, compared to £1.65 million the year prior, a reduction of 12%.
The report also suggests that while the Riviera offers some world class ‘trophy’ listing, the prime listings of the region’s cities are growing in appeal for those seeking an investment opportunity.
Cannes, for example, has a global reputation as a centre of film, culture and entertainment with its annual festivals. Prime listing here is cheaper than the ‘Caps’ and short term lettings are in high demand. Buyers can benefit from dual use listing 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, the report also explains.
Indeed, smaller, higher yielding units in Nice, for example, have gained favour with investors attracted by depressed sales prices but stable rents.
The report also points out that 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 listings for just a few weeks of the year,’ it adds. The Middle East market, which favours the Riviera as a summer season destination, is regarded as an important driver here.
It points out that 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 listings on large plots and subdivide into smaller, multiple units where permitted.
The report concludes that the French Riviera is a global brand and a destination of worldwide renown and with a long historic reputation. Synonymous with the global rich and famous, it offers an authenticity which emerging or purpose built resorts cannot emulate.
‘A growing desire for this authenticity will underpin demand for prime listing over the long term. Suppressed prices, an improving tax structure for non-domestic buyers and a weak euro puts prospective purchasers in a very strong position. Buyers may seek to move now to take advantage of a future market upswing,’ it explains.
‘Ultra prime markets in world cities are cooling following a period of sustained price rises. Investors are now beginning to peel away from expensive city centres and seeking alternatives in other cities and leisure hotspots. The Riviera is poised to benefit from this trend and it is also regarded as a safe haven,’ it adds.
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Source: Property News Spain