Should one invest into real estate investment in 2024?

The year 2023 proved to be a challenging one for rental investors. Many of them put their plans to purchase a second home or an apartment for Airbnb rental on hold, waiting to see how far borrowing rates would climb.

Then came the time for acceptance 🙂 We eventually came to terms with the end of the 1% interest rate era, realizing that it remained more appealing to invest at 4.5% than not to invest at all.

In this article, we will demonstrate why it still makes sense to invest in an apartment in Port Grimaud (or anywhere in France) even at what are considered high interest rates.

Real estate operates in cycles

Real estate operates in cycles, subject to fluctuations influenced by various economic and social factors. In recent years, we’ve witnessed a particularly dynamic cycle, characterized by significant drops in interest rates and an increasing awareness among the French of the importance of investing to secure their financial future, particularly in the face of retirement challenges.

Moreover, the Covid-19 pandemic has spurred a period of increased savings, further fueling the real estate market.

This has led to an unprecedented wave of real estate investments: nearly 1.2 million transactions in 2021 compared to an estimated 800,000 transactions for the year 2024.

The current market is sluggish, it must be said. With interest rates ranging between 4% and 4.5% over 20 years currently, the borrowing capacity of the French has been greatly limited, and only those who can put a significant down payment on their real estate projects are coming out ahead.

Nevertheless, the real estate market is remarkably resilient. It’s not a market where everything automatically comes to a stop when interest rates rise. Indeed, we’re not witnessing massive price drops. At least not on the French Riviera, a French exception, which continues to appreciate in value.

We’re in a buyer’s market

The transaction volumes are declining. Many loan applications are not being approved. Consequently, buyers are regaining power in a market that has been in favor of sellers for the past 10 years.

While the prices listed by agencies may not seem to be dropping, know that some owners are willing to entertain aggressive negotiations, especially when buyers do not include loan contingency clauses in their purchase agreements.

But beware, this situation may not last as long as some imagine. We already sense (in March 2024, the date when we are writing this article) a stirring and renewed interest in purchasing a holiday home. Interest rates are starting to drop and have even fallen below the symbolic threshold of 4% for a 20-year loan. Specialists even predict a landing between 3.00% and 3.50% by the end of the year.

Sellers are aware of this, and the risk is that prices may start to rise again in a few months, as there is often a correlation between the decline in borrowing rates and the rise in real estate prices.

Buy now, renegotiate later

France benefits from a very unique system that many foreign investors envy. We borrow at fixed rates with the possibility of renegotiating our loan at minimal cost when rates drop. Therefore, the question of the borrowing rate becomes secondary when one already has sufficient debt capacity.

Some sellers are willing to accept significant price negotiations, especially since the number of solvent potential buyers is much lower than before. Take advantage of this to buy below market prices.

If you negotiate well and buy low today, you will have benefited from an attractive purchase price and you will be able to renegotiate your loan when rates have inevitably dropped within 2 years.

If you’re an investor ready to take action, you’ll win on both fronts