Activity has been buoyed by record-low interest rates and competitive asking prices. Transactions across the whole market are up 23% in the year to May 2017. The prospect of interest rate rises has encouraged buyers to close deals and stock levels have fallen.

In the first quarter of 2017, prices stood at €8,450psm across the whole market. Leading indicators from the Notaires suggest prices reached €8,800psm in July 2017, representing an annual price growth of 7%. In the prime market, prices have grown from a 2014 low, averaging between €12,000 and €17,000psm (depending on the area and the quality of the renovation). Exceptional properties are trading for between €20,000 and €30,000psm. Values in the 1st, 4th and 5th arrondissements have already exceeded their 2012 peak.

^{Source: Savills World Research, MeilleursAgents.com (1st, 4th, 5th, 6th, 7th, 8th, 16th arrondissements)}

Foreign buyers decline

A historic city, Paris is characterised by apartments of the Haussmann era, with limited new development. Consequently, modern buildings with high levels of services and amenities (a type favoured by wealthy international buyers) are relatively rare in Paris. Pied-à-terre, larger apartments and mansions are sought after by French and international HNWIs. Family apartments are sold mainly to the French.

Foreign buyers accounted for 9% of prime Paris sales in 2016, down from a peak of 14% in 2008 (sales above €1m). The terror attacks have led some international buyers to postpone purchasing plans. Americans, who benefit from a strong dollar, dropped from 21% of foreign buyers in 2015 to 16% in 2016.

Other Europeans are the largest single foreign buyer group (39%), led by the British, Swiss and Belgians. Buyers from the Middle East and Asia are present in small numbers. The Chinese, a huge tourist group, have yet to make their mark as property purchasers.

Taxes and fees are not prohibitive

The perception of France as a high-tax location has weighed on the prime markets. But our analysis of buying, holding and selling costs in major world cities suggests this is unfounded. Property taxes and fees are, in fact, average by global standards (see below). Purchase costs, in particular, are lower than many rival cities. Hong Kong, Vancouver and Singapore all levy 15% stamp duty on foreign buyers (on top of existing stamp duties).

^{Source: Savills World Research Note Scenario assumes a $2 million property (or equivalent), foreign buyer holding for five years as an individual, not as main residence. Any capital gains are not included.}

Political stability

Emmanuel Macron, the French president, and his commanding majority government, should mean a period of stability for the Parisian residential market. Reduced political risk in Europe coupled with pro-business reforms could result in renewed economic growth and stimulate the residential markets. The current Wealth Tax (ISF) is to be replaced by a tax on real estate wealth, ‘Impôt sur la fortune immobilière’ (IFI) in 2018.

The Airbnb capital of the world

Paris is reported to have more Airbnb listings than any other city in the world. Rent caps are in place for new leases on standard apartments (not applicable if the property is let as a secondary residence). This has led many owners to let their primary residence on Airbnb, allowing them flexibility of use and higher rental returns. Fearful of implications on the wider rental market, there is now a four-month cap on Airbnb rentals, which must be registered with the city.

As a result of landlord restrictions, rental growth has been largely flat in the last five years. This is at a time when (until recently) capital values had been falling. This pushed out rental yields, which now stand at 3% for prime property, just below London and New York.

Market dashboard

^{Source: Savills World Research, Notaires Paris-Ile-de-France}