Prestigious real estate, the refuge value by excellence - Webinar by Thibault de Saint Vincent

Prestigious real estate, the refuge value by excellence - Webinar by Thibault de Saint Vincent

By Olivier Babet

1. BARNES is present in 60 exceptional locations, how is the luxury real estate market today, in the midst of a health crisis? What are you observing?

Good morning to all. Yes BARNES is present in about twenty international cities located in Europe, the United States, and in about forty resorts also located in Europe, the USA, the Caribbean, and the Indian Ocean. The Coronavirus crisis occurred in a context that was extremely favorable to high-end international real estate.

For the last ten years, globally and everywhere in the world, demand has exceeded supply, but with markets that differ according to the political and economic data or the economic situation in each country... markets that differ from one city to another, from one seaside resort to another, from one ski resort to another.

Thus the Coronavirus intervened in a euphoric market in Paris and in France in general, in a market that was just waiting to go back to London with the long-awaited advent of the Brexit, in a market that was beginning to run out of steam in Madrid despite strong demand from South American customers, or in a market that had been correcting downwards for 2/3 years in New York. The way out of the crisis will, therefore, be different in Paris, Madrid, London, Lisbon, and New York. It will also be different from one resort to another.

We can already see that there is still full confidence in prestigious real estate, which is the refuge value par excellence. High-end real estate was already considered as a refuge value for a good twenty years from a financial point of view, but with the Coronavirus crisis, everyone has become aware that having a well-placed quality property, with beautiful volumes, a beautiful view, a terrace or a beautiful garden, is also the best refuge when everything goes wrong. We had forgotten that quality stone is not only a financial refuge but also a physical refuge. And most buyers today are fully aware of this.

We have received many calls, in all the cities where we are established, from investors who say they are ready to act quickly to acquire quality properties at an attractive price. At the same time, we are also receiving calls from private individuals who tell us that they are now in a hurry to buy because they have large sums of money that they do not want to leave in their bank accounts for too long. In addition, we continue to sell in all districts of Paris, but also in the south of France, in Biarritz, Lisbon, and London. These are obviously much fewer than before and can be counted in each of these cities on the fingers of one hand, but this allows us to see that high-end real estate is surviving despite the crisis.

To give you a better understanding of the behavior of buyers, I am going to describe, by way of example, what is currently happening in Paris at BARNES, given that BARNES is the leading Parisian player. On March 16, when we had to close our 18 agency offices, we had 122 open promises to sell and 87 accepted offers to buy. Of the 122 open promises to sell, ten or so contained withdrawal periods that had not yet expired. Since that date, we have therefore registered three retractions and three buyers have notified us that they have not received their loans. So less than 5% breakage on the promises to sell. 

As for the 87 "accepted offers to purchase :

  • A dozen of them have already materialized into promises to sell,
  • About fifteen additional sales promises should be signed within 10 years. days mainly remotely and by proxy.
  • 35 purchasers have indicated to us that they wish to postpone the signing of the promise to sell after the confinement period.
  • And about a third of the buyers asked the seller to make an effort on the price. At this stage, we have been able to finalize 8 agreements with price reductions that have always been below 5%.
  • In conclusion, we can say that despite the crisis, confidence seems to remain full and complete in high-end real estate.

2. BARNES was created more than 20 years ago and you yourself have more than 30 years of experience at the head of important real estate groups, you have seen several crises pass. Can this crisis be compared to previous major crises? How is BARNES supporting its clients in this crisis?

Yes, it is true that BARNES has experienced many crises: first in 2008, then in France from 2012 to 2015, a political crisis with the advent of Mr. Holland, which led to a drop in transactions and prices in France of more than 30% in three years. But it is true that in the 35 years that I have been in this business at the head of two major real estate networks, I have experienced two crises at a global level:

Firstly, the crisis of 1992 which followed the outbreak of the Gulf War at the end of 1991. 92 marked the end of a long cycle of property price increases throughout the world, with prices in France falling by almost 50% from 92 to 97.

And secondly, in 2008, a global financial crisis that saw property prices hit almost everywhere in the world with a relatively moderate fall in prices of around 10 to 20% and, above all, a very short one, lasting from six months to three years depending on the country.

The Coronavirus crisis is different from the two previous ones. It is different from the 1992 crisis because at that time high-end real estate was not considered as a safe haven as it is today and different from the 2008 crisis where the different players (sellers/buyers/investors) did not have as much cash as they do today. In this context, we are quite confident. After the end of the containment period, we anticipate a three- to the six-month gap, during which there should be a real drop in transactions, with a few necessary sales and a few opportunity purchases. During this period and in a context of relatively low volumes, prices should fall by 5% to 10% depending on the quality of the goods. After this period, i.e. at the end of the year around October or November 2020, transactions should pick up again at a more sustained pace and price levels should be slightly lower than today's prices.

So how is BARNES supporting its clients during this crisis: well, BARNES teams have already started to do so in all the destinations where we are established. Thus this Russian client contacted us last week to entrust us with about fifteen properties he owns in France with the need to want to sell before the end of the year. So we have set up a team of five people to draw up value opinions and then we will begin a bidding process with interested investors in the second half of May 2020; it is also all those buyers who are committed to promises of sale, worried about the situation, who ask us for advice and who we accompany by negotiating an effort with the sellers on their behalf; it is also those families who own several properties in France, the United States, Italy, Spain and Portugal and who ask us to help them arbitrate to enable them to recover the cash. It is also this highly indebted client, owner of about thirty apartments, who asks us to accompany him in his negotiations with one or more banking institutions. Finally, it is many buyers or tenants who need to find a place to live and whom we accompany on a daily basis. We were thus able to allow five families to move in last week at a time when removals require administrative authorization and everything is complicated.

3. At BARNES, you have a global and worldwide view of the market, with 90 offices around the world. How does this global vision help you support your clients and investors?

It's true that BARNES' strength in this context of international crisis which affects every country in the world without exception, is to be present in 15 countries and more than 60 destinations. In each of these destinations, be it St Barth, Mauritius, St Tropez, Marbella, Biarritz, Lisbon, New York, Miami, or Los Angeles, BARNES has directors who are all local experts. Thus, beyond market expertise, they all have access to great opportunities and offer you a range of services that can help you make an acquisition in complete peace of mind in a country that is not your own. Thus in all the offices where we are established, we accompany our clients to advise them on the best legal set-up, to help them finance the property, to carry out works or furnish the apartment and possibly manage their property. In addition to traditional residential real estate, we have expertise in vineyards, golf, yachting, and also in hotels, which are particularly affected by this crisis. It is true that this local expertise and this international perspective allows us to provide the best advice to our clients in a period where there is cause for concern.

Forgive me for being a little long. I thought it was important to be able to present you with an overview of what we are experiencing in the field at a time when we are going through this crisis. Finally, I would like to remind you that I am at your disposal at any time and that you can reach me by e-mail. Thank you to all of you.