What's going to happpen to house prices in 2006?

I have seen some truely shocking prices already this year and although it remains to be seen whether they sell at these rates I have a sneaking feeling some sellers have been sniffing something the rest of might like to find.

Example, I recently saw for sale a house that was originally on offer when I moved here in 2002. Still offered by the same owner it has now risen from an expensive €250,000 (in 2002) for €450,000 this year. This is for 150m2 with a small terraced garden and no pool. Yeah; right.

As a measure they also offer it as rental accommodation for €1,000 per week in high season. If the house sleeps 6 this is about 50% more other non-pool houses in the area (non-pool rates are approx €100-125 per person per week); but if it will accommodate 8 then it is about right.

So, assuming €1,000 per h/s-week is right, annual potential rental income is c€15,000 per annum, at 5% return values the property at €300,000, which is a little closer to the mark.

My personal feeing is that the challenge in todays market is that 1) foreign sellers are looking to realise the same rates of return they might get in their own domestic market (in terms of both rental incomes and asset appreciation); whilst, 2) local sellers are doing what they always do - pricing according to their needs and waiting for the market to catch up with them.

Eitherway, some prices feel overheated, whereas the market for sub-€200,000 properties, where over 60% of foreign buyers first pitch their offers, remains highly competitive (because the locals play in this market as well.).

However, with RFC World-Cup next year and a good spread of matchday destinations (Toulouse and Montpellier and Marsaille in this area) we could see a price bubble. Anyone who can get their house into good condition this year, and get some healthy returns onto their rental book, might be able to exploit this to their advantage later.

Limousin; might as well go to Turkey!

"incroyable, mais vrai".

The real pressure on the market is at the low end. In February of 2005 you could buy a village house in decent condition with a court or small garden for 125,000 to 140,000 in the Aude. By May last year there was nothing like that on the market.

Now you'd probably have to pay at least 175,000 unless you are willing to do a fair amount of work.

The other thing that is different this year is that people are buying more expensive properties, houses in the 300,000 to 350,000 range. And they are financing them rather than paying cash.

Definitely different this year, more activity, higher budgets. A different client. They are prepared to spend more but they also want more. If vendors are unrealistic when they price their houses the market will once again respond by slowing right down.

Sam

That's a great update Sam; thanks.

We run a price-watch on private sales and over 200 in the sub-150k€ bracket so there's definately a lively market in that price-bracket; nothing with the agents though because they won't get out of bed for less than 10,000€ on there's no margin in these properties.

I can tell you that up-to-250k€ is very, very fast-moving right now as well.

I agree about the market maturing; with great mortgage rates here (though the forecast is for rises...;-(( it makes sense to mortgage, especially and the Languedoc is doing 10% compound growth at the moment.

My belief is that buyers have the right to be picky at &gt1;350k€ and if that's where the markets growing it's great news for the perception of the region.

I was interested to read the returns from Notaires for 2005, showing that building land (on a per-plot basis) is now second only to Cote d'Azur - that tells you the Lamguedoc is "on the move".

Jules

Returns from notaires offices for the year ending July 2005 show that Languedoc Roussillon has the highest per-plot prices for new-build land outside of the Cote d'Azur.

Of course "price-per-square-metre" depends upon how big those plots are; so Myla's point of diminishing plot-sizes is especially relevant.

In fact those same returns for the last 7 years show prices for houses sold-on (ie excluding new-build) in the Region have been rising at approximately 10% per annum - meaning that the whole Region (taken as an average) has doubled over the last 7 years.

My feeling looking at this years market, and we've got resaerch on over 2,500 houses to back this up, is that the stupidity of 2004/5 is draining away and anyone thinking of dipping their toe into the Languedoc market this year is going to get more and better for their buck.

As Myla suggests; taken against the last four years, there's never been a better time to buy in the Languedoc.

My understanding from bits and bobs I've picked up along the way (could all be wrong of course....)

In 1999 there was a stated plan to drive the population of Montpellier from c400,000 to c700,000+ by 2005, and to generate a first-tier city in the south-central/Languedoc.

This was clearly designed to stay ahead on Nimes and to rival Nice/Sophia Antipolis, to hold onto IBM, Nortel and other "blue-chip" employers and to pull other hi-tech employers into the area.

Part of the plan (investing in employment) worked partially whilst the other part (investment in new and affordable housing) failed (on the back of losing both IBM/Nortel?). In a nutshell there were more people chasing fewer available houses.

Either way, house prices jumped some 30% in (was it?) 2003 or 2004 [I got this from midi-life.com but the site's down at the moment]. Most local folk then looked at the motorways and relocated to Sete, Frontignan, Clairmont l'Herault and the likes. This has had some effect at reducing the pressure on prices in Montpellier (less demand) but as to an actual "correction"; I think that misunderstands the nature of French negative-equity, a Frenchman's traditional relationship with property and the way the housing market operates here.

Mostly buyers who have negative-equity will wait until the market catches up with them, or else rent/lease if they have to move themselves.

I suspect Montpellier remains a good place to invest in the right property, but that might not be what you're looking for. There will always be a call for good, affordable housing on the estates and for decent student accommodation in the centre. As for the elegant, architect designed villa with pool on an acre two mintues from 'la Comedie - I think not.

So if you're moving to Montpellier for work or cultural reasons I guess I would join your bank-manager and recommend commuting, but it'll be a long communte because all the other commuters have distorted prices for miles around already.

But Perpignan? that's another story.