Interviews with French Real Estate Experts
13TH April 2021
The real estate sector has had a significant impact with the ongoing pandemic. To better understand the developments & how things are expected to unfold in France and broader Europe, we interviewed our top French real estate experts. We sincerely appreciate their time and consideration during these interviews.
Mr Henry Buzy-Cazaux, has spent more than 30 years within the real estate sector. He is the founder president of the Real Estate Services Management Institute, one of the main training institution for real estate professions.
Mr Frédéric Monssu is the former Managing Director of Guy Hoquet L’Immobilier and Private Real Estate Services Managing Director of Nexity. He is now Vice President of AT-Ypique, a company which helps its clients to improve their commercial performances.
How is the real estate market in France currently performing? Are there any key trends to watch out for?
Mr. Buzy-Cazaux: “The residential real estate market in France should be analyzed by distinguishing between new and existing. Construction is currently experiencing its worst crisis since the last 30 years. In 2020, production did not exceed 376,000 housing units and barely more than 300,000 are expected in 2021, for needs estimated at a minimum of 450,000. This is due to a decrease in housing assistance of €4.3 billion in two years, degraded relations between the State and the Mayors (who are responsible for issuing building permits), Municipal Elections that have frozen projects, difficulty of acquiring land at a controlled price, instability of town planning rules and the slowness of the process for examining permit applications are the main obstacles. COVID-crisis has also raised the cost of construction sites and slowed down their execution.
In existing housing, after good market resistance in 2020, 2021 is already down 20% as the first quarter ends. Prices have stalled in the big cities and their near peripheries. Medium-sized cities are of much greater interest to households than before, with a desire for an improved quality of life and the possibility of remote working among individuals.”
Mr. Monssu: “It is commonly said that the criteria that make the real estate market more fluid are access to financing, jobs, and the French confidence index. The first 2 months of 2021 witnessed low interest rates, economic growth expected at + 5%, demand that remains strong and a lack of supply that is felt among transaction professionals (sellers probably waiting for better days to sell at the best price). In summary, the indicators seem to bode well, however, the decisions taken by the Banque de France to relax the conditions for granting loans may be a warning sign for a market that risks getting tougher. The impact of the health crisis, the economic and social crisis, which has not yet been measured, all the effects are amounting to uncertainties that do not facilitate the readability of the market. With economic and social fractures widening, many real estate projects could be abandoned or postponed. After health, the priority that remains more than ever is the prospect of employment and purchasing power. While the creditworthiness of buyers is the key criteria, trust remains one of the essential engines of the real estate sector.”
Looking at broader Europe, are the real estate trends similar in other European countries?
Mr. Buzy-Cazaux: “The other European countries are experiencing the same slowdown in the activity of resale of existing homes, or even steeper declines, especially those which have not safeguarded the purchasing power of households with powerful aid as France has. In contrast, most of these countries have better land use planning, and prices are more affordable in relation to household incomes. Finally, in European countries with economies comparable to France, new construction is more dynamic and responds correctly to the needs for renewal of the stock and to replenish it according to the needs created by sociological changes.”
Mr. Monssu: “The crisis has clearly changed buying and selling behavior in some European countries, as well as the support policy of central banks. However, due to my lack of deep knowledge of real estate in other European countries, I cannot give an informed opinion on the latest trends. I simply note that despite the crisis, Paris remains one of the most expensive capitals in Europe and France continues to stay ahead of European countries for the creation of new housing, two indicators which for me seem to represent the dynamics and the attractiveness of a country’s real estate market.”
What were the consequences of the pandemic on the real estate market in France?
Mr. Buzy-Cazaux: “The pandemic first interrupted all construction and marketing activity. A small number of transactions took place digitally, partially for new homes and exclusively in the case of rentals. Activity was then able to resume, both on site and in agencies at the cost of strict health protocols. This significantly increased production costs, around 10%. This additional cost partly impacted the players’ margins, but it typically passed on to the end customer. During the first months of the pandemic, the French undoubtedly saw the housing project as a way to preempt the future and to fight against the health abatement. In recent months, there has been the desire to invest and no doubt also the fear of a deterioration in individual situations that has left concerns in people’s minds. More positively, the French are rethinking their relationship to work via teleworking, which before the crisis represented 8% jobs but now constitute close to 20% & is growing. They are also changing their outlook on housing, aspiring to a location that guarantees a greater quality of life, particularly in medium-sized regional towns and rural areas, with greenery and clarity, and an office.”
Mr. Monssu: “The health crisis is not having the same effects for all real estate professionals and buyers across various regions in France. The lockdown and the introduction of teleworking have had an impact on the selection criteria sought by buyers. New requests have arisen, such as: the search for more space, more light, but also the quest for a house with a garden. Paris experienced a decline in the number of transactions to the benefit of the Ile-de-France region and in particular the single-family home market. Regarding real estate professionals, there has been a significant increase in the number of independent agents, which has been linear for several years (on average +5000 agents / year), and whose number literally exploded in 2020 with nearly 40,500 agents. The explosion of this mode of distribution is certainly the result of the successive lockdowns which did not allow traditional agencies to be open but also digital networks such as Capifrance, IAD, Optimhome, etc.. which have facilitated the remote management of their agents and end customers. The so-called traditional real estate agencies which are estimated at nearly 27,400 at the end of 2019 (of which 93% have less than ten employees), suffered from forced closures, partial unemployment of their staff and also for the lack of digital tools (CRM, digitalized customer journey, electronic signatures,etc.) – making it impossible to manage “remote” relationships.”
The market share of agent networks in France is on the rise, in what ways can the major players differentiate themselves today?
Mr. Buzy-Cazaux: “We witnessed a high birth rate for agencies between 2017 and 2020, now numbering 300,000. At the same time, the model of agent networks is in fact actively developing and the fundraising of the French player (IAD) and other international leaders in this space, clearly outlines that economic observers and investors consider it promising. The growth rates of the top 5 players are between 15% and 30% per year, and this conquest is 2/3 in the over-the-counter market and 1/3 in the agency market.
The time for differentiation, after fifteen years of existence in France, has come for these players, for two reasons. They are first engaged in a merciless competition to attract advisers, who choose a particular brand. These advisers must then gain the trust of owner-sellers, or even lessors for rentals, if they want to have a sufficient portfolio. Brands are being built which use mass media, such as television, with considerable investments. IAD’s pyramid organization is not that of Keller Williams, halfway between agency and network, nor that of Safti. Package offers for sales agents are being refined, with training being at the heart of differentiation, such as digital tools. In this regard, these players have understood that they need to have marked technological advancements in this area, while traditional agencies are reforming digitally, in particular within large franchise networks.
Despite this differentiation at work, it cannot be denied that certain networks of agents will not succeed in standing out and will have increasing difficulties in asserting themselves on their territory against the leaders. The consolidation will obviously continue and the most large networks are now buying, external growth is also a growth accelerator for this model.”
Mr. Monssu: “In the world of real estate transactions, the latest major innovation dates back to the replacement of paper advertisements by online advertisements. The advent of data, algorithms, the acceleration of the digitization of processes and support could effectively once again create disruptions or at least “changes of focus” in the current operating methods of the major players. For example, the arrival of 100% online agencies offer their clients the same services as traditional agencies but with a fixed commission. Thus, the commissions or fixed prices of these new distributors of real estate services range from 2,590 euros to 1.99% of the sale price. Polls show that 65% of respondents find agency fees too expensive. In fact, 70% of French people try to sell their home themselves, but only 30% manage to do so, 5% of which with the help of their notary. The expectation of new commercial approaches therefore remains strong on the customer side, which leaves room for the search for differentiation. In addition to these new distributors of 100% online and “à la carte” services, there is a new breed service offer by ‘iBuyers’. The service here involves the seller providing details of the property he/she wishes to sell (online form), a price is offered immediately, the seller can accept or refuse it. If the offer to purchase is accepted, an expert will come on site to validate the information provided by the seller, and possibly complete the description of the property. Like Aramis in the automotive sector, the iBuyer will relist the property on the market with its distribution margin linked to marketing costs and above all to financial risks.”
Some companies have succeeded in distinguishing themselves thanks to their technological contribution, particularly in data management. Do you think this is the future of real estate? How could real estate develop further in the future?
Mr. Buzy-Cazaux: “To date, we have to be honest in recognizing that the digital technological advancement of proxy networks is insufficient and it is obviously in the area of data mining that the fight must be waged. This work has barely begun. For example, in real estate, as in most other commercial sectors, we do not yet have the means to anticipate household purchasing trends, or the nature of their choices, which are often poorly expressed and subject to a very rudimentary form of customer discovery. Google is working on this data to catalyze the data processing efforts for real estate players. That said, GDPR compliance continues to remain paramount. In France, Seloger is today the largest producer of information on the real estate market and publishes thematic studies and detailed analyzes every week. This is potentially due to Google having developed high-level skills in the analysis of data relating to housing and household expectations, with a dedicated service created in Paris.”
Mr. Monssu: “Referring to the iBuyer concept mentioned earlier, this technique, born in the USA, has seen real estate players pivot on their model to provide this new service to their customers. For example, Zillow, a price estimation site and major portal across the Atlantic, became iBuyers in 2018. In France the Digit Re group has completed its range of services for independent agents by launching Dili, its brand of iBuyer. Moreover, in this country other evolutions can come from other players such as for example the Axel Springer groups (Logic immo, Se loger, MeillAgents) or Le Bon coin (acquisition of AVendre_A rent) which own a good part of the chain that allows to put a seller and a buyer in touch without going through the relationship of an intermediary. There, isn’t the future of real estate in the age of disintermediation, just like many other industries? However, I personally believe that the distribution methods of tomorrow will be the points of convergence between a digital relationship initiated by the customer and a physical relationship with high added value. Digital is not an end in itself, it is a great opportunity to reposition people at the heart of the relationship. All the social systems developed and run by companies will aim to equip themselves with influencers and contributors on the net, allies to whom we give access to the knowledge base and who over time become ambassadors for the brand.”
What type of consolidations are possible in the coming months, within French real estate market?
Mr. Buzy-Cazaux: “Consolidations will most likely take place during 2021, not only targeting mid-size players in the transaction, but also with the buyout of leading operators. This movement will concern agent networks, but also real estate franchises. In this part of the real estate universe, consolidation began in the preservation of brands, with the takeover by Arche, the holding company of the Citya group, Guy Hoquet and Laforêt Immobilier. Another large-scale operation is expected to follow very soon.”
Mr. Monssu: “With more than 40,500 agents, France currently has more than 150 agent networks, of which the top 10 networks alone account for 50% of the number of agents. For controlled organization, the development of these networks will have to go through a necessary phase of network consolidation. This new model of distribution was first born in 2006 and on average these networks are about 7 years old. Therefore, this model is not yet mature and is yet to be perfect in its professionalism, its organization and its legitimacy. This optimization of the business will be supported by the resources provided during network consolidations.”