Real estate market tense

In just a few months, the Covid-19 crisis and the war in Ukraine have turned the real estate market upside down. The rising cost of building materials and soaring energy prices have penalized developers, who are also having to cope with more customer withdrawals. Here's a closer look at a market that's getting tighter as interest rates soar.

Steadily rising materials prices

The war in Ukraine has caused the price of certain building materials to soar, after they had already risen following the Covid-19 crisis. Trade organizations are already anticipating a deterioration in margins and cash flow, pointing to the difficulty companies will have in passing on this inflation to their customers.

In its latest economic outlook, the Fédération française du bâtiment (FFB) reminds us that "most building contracts are signed at firm, non-adjustable prices ".

Against this backdrop, some suppliers have committed to issuing quotations valid on a monthly basis, with price increases applicable on the first of the month only. Others have announced that they will maintain their prices for at least 60 days, to ensure greater visibility of future price increases. Despite these efforts, developers, who are also faced with rising energy prices, are considering abandoning certain operations and are beginning to be more careful about land prices.

Rising interest rates threaten households' ability to buy property

Another complicating factor for developers is the sustained rise in interest rates.

Rising interest rates are weighing on demand for new and existing homes. In fact, in Q2, multi-family housing sales were down 10.5% on Q2 2021. According to the Fédération des promoteurs immobiliers (FPI), this decline will reach 14.6% over the 1st half of 2022.

" We can see that we're falling behind a long-term trend," says Pascal Boulanger, the organization's president.

The same is true of housing reservations, which fell by 24.3% in Q2 and 21.4% in H1 2022. The drop is even more pronounced for lot sales to institutional investors and social landlords, reaching 42.3% over 3 months.

Finally, the increase in customer cancellations is a cause for concern. This has risen from 13% to 26% of total reservations. The main reason for this is the ever-increasing number of bank refusals to grant mortgages.

Nevertheless, the sector is not short of liquidity. In addition to family offices, which are able to invest their own funds, there are banking institutions which, despite their reluctance, are always willing to finance real estate transactions.