Reversal or capsize in sight?

8 January 2024

After an annus horribilis in 2023 (volumes and prices), 2024 will once again be a year of transition for the residential market. But it will probably be very different depending on the market segment. Nexvia, the real estate agency, explains.

Existing home market set for recovery

The existing property market is well ahead of the price correction (-15.7% on transactions in Q3 2023 compared with Q3 2022, the peak recorded) compared with the prices of properties under construction (-7.7% on transactions in Q3 2023 compared with Q3 2022, also the peak recorded). And transactions in existing properties in the last quarter were carried out at even lower prices.

At the same time, long-term borrowing rates have finally started to fall, steadily since the beginning of November 2023. Whereas banks were granting 25 or 30-year mortgages at an average of 4.5% at the start of November, they are now offering rates averaging 3.65%.

As a result, existing properties are now returning to a similar cost to that before the explosive rise in mortgage rates, but at current borrowing costs. Nexvia therefore expects stronger demand in 2024, which should be materialised first and foremost by a reversal of the trend in transaction volumes.

If the forecasts for monetary easing prove correct in the short term, Nexvia even believes that the first or second quarter of 2024 could mark the low point in transaction prices for existing properties. The low volume of existing property stock will then play a part in restoring a long-term upward trend.

Transaction data collected in real-time by Nexvia from its banking partners can also be used to continuously value your property.

A new-build market that needs restructuring

Overall, the market for new-build properties is lagging behind the price correction needed to restore liquidity quickly. Sales prices have not been adjusted to the new financial paradigm in a market driven by investors, who are extremely sensitive to interest rates.

Although long rates seem poised to stabilize at or below their current levels, it appears improbable that either long or variable rates will dip below 3% again in the near future, especially not in 2024. In this context, relying on a "wait and see" strategy for selling prices, as adopted by some developers facing constraints from excessively high land acquisition costs, is unlikely to be effective. This is particularly true considering that owner-occupiers are not readily positioned to seamlessly replace the void left by absent investors due to factors such as extended waiting times, construction period costs, and associated risks.

The difficulties experienced by some of these developers in meeting their repayment commitments, refinancing or restructuring their debt with their lenders, could lead to their capsize in 2024.

The others will have to adapt their commercialisation prices to those of recent existing properties, comparable in terms of product. But it's a safe bet that the correction will take a long time, especially for those who can hold out for a long time.

Temporary tax measures to get individual investors back into the new-build market will nonetheless help to cushion the fall in prices needed to get sales back on track, and will probably absorb the current stock of projects over several years.