The return of real estate, finally the prices drop!

[Christophe]

Exactly what explains this bubble of the early 90's?

[crispus]

Exactly what explains this bubble of the early 90's?

Bubble 85-90 or its burst?

The evolution of bank interest rates, adjusted for inflation, should be compared. Around 2001-2002 this rate was almost negative: borrowing at 2% was cheaper than saving with inflation at 3% (indicative figures).

Then historically, as Friggit's graph shows, real estate has a value that is appreciably stable over the long term: hence its “safe haven” value, like gold.

But in addition, the property is unique as a savings product:

- It is the only one that an individual can buy with "leverage", on credit over the long term. Try to borrow over 20 years to buy gold

- it generates rents which follow inflation, since they traditionally follow the development of wages, or even exceed it at the moment. Stock dividends are much more volatile.

We must add a final ingredient, a pest: the tax incentive.

The Mehaignerie law (1985-89) allowed the owner to deduct all loan interest for a new property intended for rental. And interest rates were very high at the time, around 10%! Again, "free money" for the investor.

This financial windfall made the heyday of developers who took advantage of growing demand to inflate the price per m² of new rental.

There was no reason that the rental is more expensive than the residential? He also blazed up! Suddenly the sellers aligned the price of old on that of new, helped by the "construction cost index" overvalued by developers, on which were indexed ... rents. Luckily, the Méhaignerie law, which regulated rents, limited this slippage.

To pluck more pigeons, we also used SCPI:
"You don't have enough to buy an entire apartment? Your banker offers you to buy shares in his Société Civile de Placement Immobilier, which takes care of building and renting apartments for you."

This technique has also made it possible to pluck many small savers, eager to enrich themselves "like the adults"

The contraction of tax incentives (Perissol law) made rental less attractive and sounded the death knell for expensive real estate.

At the same time, developers have also invested massively in corporate real estate: hectares of office space have been built in Paris ... for which there were no tenants!

To hide the origin of this crash, the "experts" named this period "the Gulf crisis".

To purge these excesses it was the lean years known also as "the Balladur era": rigor, rigor ... People stopped investing to save for an uncertain future. Again encouraged by the state which invented the CSG / RDS to tax this savings

The illusion of "new technologies" made this savings return "in the circuit": the price of the shares doubled continuously, everyone wanted to ensure their "retirement by capitalization" by investing in a "start-up".

The product of the hard years of 1991-96 savings thus disappeared in 2000-2001.

To revive the economy and "make new money", there was no other alternative for decision-makers than to encourage recourse to credit: to devalue savings and facilitate credit through low rates.
Investors scalded by the stock market, reluctant to finance companies in difficulty, naturally turned to real estate, "safe haven" ... We know the rest!

The drift in rental investment (1985-89) was repeated in 2003-2007 with the Robien system, which controlled rents less than its predecessors Périssol and Besson and thus made it possible to increase the "rental yield".

Once again the promoters (Ne *** y and others) have embarked on the adventure, offering "Robien" turnkey "in the manner of SCPI:" we take care of everything: financing, construction, rental " .
Banks have created their subsidiaries dedicated exclusively to "real estate": Natixis, etc ...

Their optimistic financing plans, projection of the delirious evolution 1998-2004, included increasing rents and a juicy added value with the resale. Yum !

Lust has completely blinded many investors. Worse, some young people have even embarked on this by counting on this "future income" to finance the acquisition of the main residence, which they could not afford without contribution given the crazy prices!

Result of the races: many "investors" realize that they are indebted over 20 years at variable rates, for housing built in a hurry, in towns where there is no rental demand (the land was cheaper for the promoter), with a rent 30% more expensive than the existing offer (Ceiling of the Robien law).

See the report of M6 "The Robiens of wrath"

In short, the Robien is a tax niche which has been used to finance hutches!

The icing on the cake, no tenant after one year means that the tax credit must be returned to the Treasury.
Yes, leverage can turn into a crank back

Same causes same effect: developers have aligned their prices with Robien (+ 30% from certain sources), at the same time inflating the price of the old ... Until a break. We have been there roughly since mid-2007, but unlike the stock market where it is settled in one day, we will have to wait for people to “sell off” their house at 30 or 50% below the presentation price. To see live on TF1 at the end of 2008 - beginning of 2009.

To hide the origin of this rupture, the "experts" will call it "the crisis of the supreme".

In short, it will take years to replenish "useful" money, that which is used to create jobs, to promote research, etc ...

[caribou]

many "investors" realize that they are indebted over 20 years at variable rate

Do you have figures for the proportion of variable rate credit? It seemed to me that these had become rather anecdotal in France, precisely following the fall of the 90s and 91s when many owners found themselves trapped by this type of credit ...

[crispus]

Do you have figures for the proportion of variable rate credit? It seemed to me that these had become rather anecdotal in France, precisely following the fall of the 90s and 91s when many owners found themselves trapped by this type of credit ...

Exact, there is no variable rate in France, only rates ... revisable

No official source, I simply read somewhere that, according to a banker, the variables would represent 20% of the loans granted in 2005-2006.

With the price of real estate increasing continuously in 2000-2006 (+10 to 15% per year), revenues were more and more disconnected from the market. Since 2006 it seems that transaction prices have been stable, ie that presentation prices have continued to increase but are more negotiated. Personally I sold in 2007 at the 2005 price, according to my real estate agent.

The principle of banks is not to grant loans if the monthly payments exceed 33% of income. It is not a law, certain "good files" would have been granted debt at 37%!

The bank is betting that in the event of unpaid resale covers the amount of the transaction, ie 110% of the value of the property (seller price + agency commission + notary fees financed without contribution). Since the August 2007 crisis it is over, the credit tap has dried up ...

The problem is that by respecting this 33% debt, from 2004 it became impossible for an average household to buy without contribution of real estate!

To artificially "resolvabilize" buyers, 2 solutions;

- increase the duration of the loan: we went from 15 to 30 years, some even mentioned the 50 years.

But the longer the term of the loan, the greater the share of interest in the monthly payment! Indeed the rate of the loan increases with its duration. And the share of interest becomes greater than the share of capital repaid!

For example, if borrowing over 50 years does not give more than 10.000 € additional than 30 years, that remains insufficient to "absorb" an increase of 20.000 €: Solution rejected (phew!).

Second solution: the variable rate. Some organizations have made it a specialty:

Principle: the financing plan is made with a "call rate" lower than inflation over a fixed period (eg 2% over 1 year)
Then, revision according to the interbank rate in force (euribor).

If increase (inevitable since artificially low rate), the monthly payment will exceed 33% of debt. Cunning, right?

To avoid the catamaran of the 80s and 90s, the law strictly regulates variable rates: the monthly payment cannot exceed a certain ceiling. Lending organizations have integrated this ceiling by setting a maximum interest rate (cap) which respects this monthly payment ceiling (xx%?) And allows the loan to be repaid in full over the maximum period provided.

How to sell a "variable rate": A purely imaginary conversation

Advise: your file does not go to a fixed rate, but you can opt for the adjustable rate ...

Buyer: I was told that it was dangerous to borrow at variable rates?

C: (looking annoyed) I didn't say Variable but Revisable!

A: How does it work?

C: You repay a fixed sum each month over 20 years.
If the rate increases a little, the monthly payment increases slightly, up to a certain ceiling (ex: + 10%).
If the rate increases a little more, the duration of the loan increases in turn (ex: 30 years). But it is unlikely (reassuring air) ...

But if the rate drops on the contrary, that's all profit, the repayment tenure automatically decreases.
And anyway, your income will increase with inflation and make the monthly payment increasingly weak (enthusiastic air).

A: (relieved) goes for the variable rate.

C: put your initials on each page and sign at the end by putting "read and approved". You have 8 days to reflect.

A: uh, we couldn't go back to last week, I'm in too much of a hurry to buy this apartment.

C: (accommodating) but of course!

But an organization that I won't mention (see below) had the brilliant idea to create an "uncapped cap": the monthly payment is capped, but not the rate! Even lawyers who have studied the loan offer ... very closely took a long time to understand what it was all about!

Thanks to incomprehensible clever twists, some have even borrowed at variable rates ... without knowing it! This is the case with certain Robien investments where even educated people have signed with their eyes closed a "turnkey" financing plan without looking beyond the smile of the seller or the cleavage of the "wealth advisor".

Result in practice:

1) the duration of the loan increases:

In some cases it is negative equity: the monthly share of interest becomes greater than the amount of the monthly payment! Example: € 1000 monthly payment for € 1200 interest!

The bank will not give it away: the remaining interest due is capitalized and ... the remaining capital of ... increases each month and the interest on this "created" capital itou!

2) The duration of the loan is also capped (eg 30 years). Result, If the sum of the monthly payments does not reimburse the loan, the buyer will have to reimburse the remaining capital of the par ... a new loan of course!

Or how to become a tenant for life of his banker rather than of a private lessor ... The bank "advisers" will have to retrain themselves in the prevention of depression and suicide ... [cynical mode on] Otherwise the loan insurers are going to slap them on the fingers [cynical mode off] ...

If you have a few days in front of you you can consult the dedicated queue on the forum cbanque (883 pages to date!), it is instructive and astonishing at the same time :
http://www.cbanque.com/forum/thread1526.html

[oliburn]

my dear Christophe,

real estate professionals are incu ... what?
I find your words slightly ............... below
of the truth !!!
I would rather say "their" after the first two syllables
I am not an owner and property is not my thing
my rent is very reasonable and suits me perfectly
for me a breeze block is a breeze block, it's not because
the law of supply and demand is endured by oxen
that I have to follow the flow.
people should be a little reasonable!
today the new home market is down 50%, but
above all, do not panic the few acorns which
would be potential buyers, so the fun
of real estate say it's not a crisis but just
recovery to normal level ... questcequi
must not hear !!!
it's stacking !!!

[Gregconstruct]

Well yeah but hey ... what is it right? A manure I call it manure ... that's all ...

I completely agree with you! I was a victim of this kind of bag ... but as a job!
They take themselves for gods these people there.
Now, I refuse to work for real estate agents or developers!


ps: Don't call them dung, it's too good for them! I like manure for my garden. But if I were to bury promoters or agents, I would not garden much! One, can you imagine the size of the holes? Two, I do not think to fertilize much, perhaps apartment of Monsantos ...

[Christophe]

See the report of M6 "The Robiens of wrath"

Excellent video! Except that ... It's not M6 but special envoy! ;)

The last issue of Que Choisir devotes a dossier:

Tax-exempt real estate, the birth of a scandal

The time for the first reviews has arrived for the Robien and Demessine programs. The excesses are staggering. Many individuals will take years to digest their unfortunate investments.

> The article
Professionals without mood
When ignoring geography is expensive
Impossible Promises
Throw in the towel or fight
Texts and drifts
The cities where it gets stuck
Possible recourse
Once upon a time, in an enchanted country ...

http://www.quechoisir.org/Enquete.jsp;j ... css=ARG202

ps: Don't call them dung, it's too good for them! I like manure for my garden. But if I were to bury promoters or agents, I would not garden much! One, can you imagine the size of the holes? Two, I do not think to fertilize much, perhaps apartment of Monsantos ...

To this extend?

ps: crispus again thank you and congratulations for all these explanations!

[elephant]

I heard an "expert" say a few days ago on the radio (RTBF): it is not the prices that are falling: it is only the cheapest goods that go!
Important nuance.
Finally ... this is a message to professionals who are mainly responsible for the increase

as a reminder: the same house went from 850.000 BF to 3.000.000 BF from 1986 to 2006, without any significant improvements, while for the same period the index (therefore wages and consumer prices) rose only by 75 %

[Gregconstruct]

To this extend?

Yes, at this point! They must have remained called in medieval times ...

Finally, there are probably some really honest people in the business, but I'm still looking!

[Christophe]

Pffff! Hope was short lived ...

New Housing Prices Go Up in the Second Quarter

Françoise Vaysse | 25/08/2009 | 11:32 | Conjuncture

While candidates for the purchase of housing have been watching for a fall since the start of the crisis, the prices of apartments and houses built by developers have already started to rise: + 3% in one quarter per m2 for apartments (at 3.369 euros) and + 5,37% for houses (at 247.400 euros on average), according to the latest MEDDM statistics.

Suite and source: http://www.lemoniteur.fr/151-conjonctur ... -trimestre