The rental real estate market, the right idea?

Contrary to popular belief, rental real estate is not necessarily the prolific golden egg hen we think is. This is evidenced by the slowdown in rent rises, while inflation continues to rise. According to Clameur, since 2007, rents have been rising by an average of 1% per year. At the same time, inflation is 1.2% per year. At the same time, tax obligations have been strengthened, causing purchasing power from rental income to fall by 2.5%.

While these figures may seem “moderate”, they have a clear impact on the feasibility and profitability of rental investment projects.

According to Clameur, 70% of the top 20 cities in terms of population are experiencing this slowdown. In 2018, 25% have even seen their rents fall.

Bordeaux, among the exceptions of the rental property market

In Bordeaux, on average, the rental value of a property is calculated on the basis of 13.6 euros per sq m. The price per square metre increased by 2.2% in 2018 when inflation was 1.1%.

Bordeaux is therefore one of the major French cities, with an exception to the rule. In 2018, the Bordeaux metropolis ranked 7th in cities where rising rent prices are driving inflation. The metropolis came in behind Villeurbanne, Grenoble, Dijon, Marseille, Paris and Toulon. She was followed by Angers and Rennes.

A year later, in 2019, Bordeaux came in first place with an increase of almost 10% (9.87%) rents, in front of Lyon, and above all, in front of Paris.

Beware, however, rental investments in Bordeaux still have a long way to go. Nearly 10 years are now needed, whereas it took about 5 years ago.

Even more striking, Bordeaux is at the top of the list of cities where the rental market is the most tense. There are 6.83 applications for an offer. Moreover, 67% of Bordeaux’s inhabitants are tenants,according to LocService. Even the flatshare, which appears to be a solution to reduce housing expenses, does not have a large supply.

This tension increases from year to year due to various factors.

Rental real estate, between students,LGV and AirBnb

First, 17% of the city’s inhabitants are students, and this population represents one third of the candidates for rentals. Bordeaux is one of the major student cities in France,and the trend is not expected to decline in the coming years. As a result, demand is expected to grow further, when the supply of rental properties is already not covering current needs.

Second “guilty”: Airbnb. According to a report by UNIS Aquitaine (Union of Real Estate Unions), the proliferation of rentals reserved for Airbnb and other short-term and seasonal rental platform undoubtedly truncates the rental properties available for year-round rentals. Moreover, even with the provisions to reduce the number of overnight stays to 120 days, short-term rental remains more profitable for landlords. Thus, according to this report, a T2 of 48m2 rented on AirBnb at 70 euros a night will bring in 8,400 euros per year to the lessor compared to 7,300 euros per year for a conventional rental.

Another factor, and not least, the LGV. Even if in 2019, house prices have slicked back and even fallen by 0.3%, we do not forget the unbridled rise of 2017 and 2018 at the opening of the Bordeaux-Paris line. These years had seen prices rise by 12.4% and 12.7%. From now on, the craze is falling back a little to allow the market to start again on a more rational basis. In any case, for rental real estate, which accounts for a large proportion of purchases, the time is now for profitability. The price of rents is therefore not about to fall.

Rent control in Bordeaux, an abstract concept

In theory, the law regulates the increase in rent prices in tense areas. In practice, it seems that Bordeaux does not feel particularly concerned.

If the rent setting is more regulated for leases in tense areas,the methods of calculation seem sufficiently subject to interpretation that this does not hinder Bordeaux landlords. Among the conditions for reassessing rent: “manifest undervaluation,” “improvement work” or “compliance.” It is easier to understand why developers are tearing up homes and find buyers so easily after a facelift and a brushstroke in the commons.

In addition, the town hall also has the option of intervening to limit soaring rents. Other metropolises such as Paris and Lille have been involved. A policy that Bordeaux Metropole does not practice. Openly displayed for many years, this position was reaffirmed in July 2019 at a city council meeting. Following which some elected officials formed the “Collective for the Supervision of Bordeaux Rents” and launched a petition. They recall, for example, that “in less than 10 years, rents have increased by about 40%, with purchasing power that does not change.”

Rents and purchasing power, changing the profile of tenants

With the rise in unemployment and the decline in incomes for a large part of the population, the purchasing power of the French is declining. This therefore has a strong impact on the means they are able to allocate to housing. In addition, the conditions of access to rentals are particularly harsh. Earn at least 3 times the amount of rent, preferably have a CDI, be able to pay agency fees… So many criteria and checkboxes that it becomes difficult to fill for the less well-off candidates. However, it is these customers who are most affected by the rental.

Especially since, “from 2015, the resumption of homeownership and first-time home ownership has contributed to the departure of middle- and high-income tenants and their replacement by relatively less well-off applicants” ( according to CLAMEUR).

Deteriorating rental park, beware of the loss of value of rental property

In general, in France, and in particular as a result of the slowdown in rents, operations to improve and maintain rental investments have fallen. Indeed, worried about the profitability of their investments, the owners reduce their work efforts. According to CLAMEUR, since 2014, 15.4% of rented homes have benefited from work. They were 23.4% between 1998 and 2013. In 2018, operations fell further to 13.3%. The lowest figure since 1998.

The problem is that without these renovation investments, the rental stock is deteriorating. Quality and value of property, housing conditions… It is the whole chain that is losing value.

However, this is not the case in Bordeaux to date, which is benefiting from rising rents. It is then up to the owners and landlords to seize the opportunity to create a virtuous circle in favour of their investments: the maintenance of real estate increases their value and the quality of the rental stock, which contributes to the comfort of life and the attractiveness of the city.

Rental real estate in Bordeaux, a good deal, except for tenants.

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