UNSTABLE ECONOMIC ENVIRONMENT & BEGINNING OF A PRICE DROP: ARE WE HEADING TO A NEW EQUILIBRIUM IN THE MARKET?

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1 Resid entia l F r a nce MarketView April 2013 CBRE Gobal Research and Consulting SALES IN SECOND HAND - 22% PRICES FOR SECOND HAND - 1.7% CONSTRUCTION STARTS % SALES IN NEW - 18% LENDING RATE 3.07% Annual trends, most recent data at the date of publication UNSTABLE ECONOMIC ENVIRONMENT & BEGINNING OF A PRICE DROP: ARE WE HEADING TO A NEW EQUILIBRIUM IN THE MARKET? Highlights Production of new mortgages for housing down (p. 1-2) New housing: construction slow (p. 2-3) A year of adaptation for the Duflot measures (p. 3) The government unveils an investment plan for housing (p. 4) Second hand housing: moderate fall in prices (p. 5-6) Close up of unit sales (p. 6) Investors still attracted to acquisitions of multihousing (p. 7-8) High-end markets also affected (p. 8) Economic Context In 2012, production in France stagnated with GDP shrinking by 0.3% in the last quarter. The risk of falling into recession (defined as two consecutive quarters of falling GDP) has not been ruled out because in first quarter 2013 growth is estimated at 0%. In the best case scenario, GDP will be just slightly positive in 2013 due to the extremely weak economic environment. Consumer spending in 2012, burdened by the 0.4% fall in purchasing power, decreased by 0.1% (the second fall since 1950). This year it may rise very slightly, notably due to lower inflation of 1.7% compared to 2% last year. Increasing unemployment looks set to continue in 2013: it stood at.2% at the end of 2012 in metropolitan France, and is expected to rise to.6% halfway through the year. Ile-de-France, with an unemployment rate of 8.8% at the end of 2012, appears less affected, but it will also see a rise in As expected, 2013 got off to a feeble start. This is clearly illustrated by the general morale of consumers and businesses alike, which remained low for the first three months of the year (about 15% below their long-term average). Consumers are generally pessimistic about the evolution of their personal finances and believe the current context is not conducive to making large purchases. Production of new mortgages for housing and trends in average borrowing rates (for the whole market) % 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q Amount of new mortgages for housing Borrowing rates (in billions of euros) Source: Observatoire du Financement des marchés Résidentiels - Crédit Logement / CSA SALES TO HOMEOWNERS The production of mortgages falls sharply in 2012 The weak economic environment and the higher degree of caution required of banks hindered, as expected, the production of mortgages in Approximately 98.7 billion in new mortgages were granted to homebuyers, which is a 32% decline since 2011 when the total was 144 billion. There was, however, a slight upturn in mortgage production at the end of the year as mortgages totalled 26.8 billion in the final quarter compared to 25.1 and 20.3 billion in previous quarters.

2 April 2013 Residential MarketView 2 While banks have tightened their conditions for granting mortgages by being more demanding with respect to the level of deposit expected and the tolerated debt to income ratio of applicants, the principal reason behind the fall in the production of mortgages is due to the slump in demand from homebuyers (Observatoire du Crédit Logement). Lending rates very low: demand for mortgages seems to have improved slightly at the start of 2013 The all-time low lending rate 3.23% on average in fourth quarter 2012 across the market was not enough to bolster demand from homebuyers. Meanwhile the average reimbursement period shortened as mortgages of more than 25 years accounted for 18.1% of production in 2012 compared to 24.5% in Households, concerned by the economic climate and unemployment, are relatively pessimistic about improvements in their future spending power. Understandably they have taken on board these market conditions that are less favourable to buying and the number of transactions concluded since February 2012 has fallen considerably. Many potential buyers expected prices to drop but sellers have been reluctant to adjust their prices. Since the end of 2012, the production of new mortgages for homebuyers has rallied slightly ( 19.5 billion in mortgages were granted in January and February 2013), interest rates having fallen to settle at a very low average of 3.07% in March NEW HOUSING A worrying situation for construction Following a very good 2011 when 420,900 new homes were built (houses, blocks of flats, social housing, residences), there was a brutal downturn in 2012 due to the fall in the home-buying market and the financing difficulties facing developers and builders. The amount of new construction starts dropped by 18% from 2011, with building starting on 346,500 new homes (the same level as in 20). Recent opinion polls of developers suggest that construction is unlikely to pick up again in 2013 and the government s objective of 500,000 homes a year appears unattainable. Nevertheless, the volume of planning permission remained high, at 495,500 houses in 2012, even if potential activity seems compromised considering the mounting number of projects that have been abandoned. The most productive regions for housing were again Ile-de- France, Rhône-Alpes and PACA with respectively 50,600, 40,900 and 31,600 developments started in Markets did, however, follow contrasting trends (up 15% in Ile-de-France, down 12% and 20% in PACA and Rhône-Alpes). In the first quarter 2013, there was an 11.2% year-on-year fall in new construction starts to 83,900 units was a tricky year for developers In 2012, 86,200 new units were reserved or acquired from private developers (in schemes composed of at least 5 homes). This is 18% lower than in Investors, who accounted for less than half of buyers in 2012 compared to 60% from 2009 to 2011, saw letting returns fall due to the lowering to 13% of the level of tax reduction under the Scellier regime, prices under pressure and possible ceiling limits on rents. Sales to homeowners, by contrast, have remained stable for the moment despite the generally poor buying context for households. Breakdown of the length of mortgages granted to homeowners 0% 80% 60% 40% 20% 600, , , , ,000 0, > 25 years years years < 15 years Source: Observatoire du Financement des marchés Résidentiels - Crédit Logement / CSA Construction starts and planning permissions in France (all types of housing) 175, , ,000 0,000 75,000 50,000 25, Construction starts Planning permissions Source: CGDD: SOeS /Sit@del2 Housing for sale, sales and pipeline of new housing in France (development channel, schemes with at least 5 units) Housing for sale Sales Pipeline Source: CGDD: SOeS, ECLN

3 A YEAR OF ADAPTATION FOR THE DUFLOT MEASURES How does the Duflot incentive work? The Duflot tax incentive for letting investment in new developments was introduced 1 January 2013 to replace the Scellier scheme that was phased out at the end of March The provision allows for a reduction in tax worth 18% of the price of the house or flat (limited at 300,000) spread over 9 years (compared to 13% for the Scellier provision in force in 2012). The main difference is that rents are capped at 20% below the limit fixed for the zone and that the tenant s income must also be below a fixed limit. The Duflot provision applies to zones where housing is under pressure, ranked as zone A bis (Paris and the inner suburbs where the rent is capped at per sq m per month), A (part of Ile-de-France, the Hyères-Menton section of Côte d'azur, and French Geneva where the rent is capped at per sq m) and zone B1 (cities with more than 250,000 inhabitants, the outer suburbs of Paris, other sections of Côte d'azur, Annecy, Bayonne, Cluses and Saint-Malo, where the rent is capped at 9.88 per sq m per month). Towns in zone B2 may be allowed the tax reduction until 30 June 2013, and thereafter will be conditional upon an approval being issued by the Préfet de région. The price ceiling limit for the acquisition to be granted a tax reduction is set at 5,500 per sq m, a level that is unattainable in Paris and in some of the inner suburbs given the price of land and construction costs. Advantageous, yes, but of limited interest The advantages of the measure could prove limited as it falls within the scope of a cap set on a range of tax incentives in France of,000 per tax household in 2013 compared to 18,000 in It is also restricted by a ceiling limit put on the rents for these homes that is below the market value. The tax reduction can thus be considered compensation for lost rental income rather than a real incentive. In addition, once the period of the initial agreement is over, the landlord cannot increase the rent to market values. There is, however, a coefficient adjusting the rent depending on the floor area of the apartment to allow for the fact that small apartments tend to have higher rents per square metre than large ones (the ceiling limit is progressively reduced for apartments above 64 sq m). At the end of the day, investors will have to be extremely selective in their acquisitions so as to take into account all the constraints. Sales to investors may stabilize in 2013 and the falling trend observed in 2012 will probably come to an end. It is hard to imagine an upturn occurring soon; players will need time to adapt so the success of the measures will only be visible at the end of the year. Sales reported in 2012 were below the level seen the preceding year in every region except Nord-Pas-de-Calais. In the three largest markets, Ile-de-France saw a slight fall (down 2%), PACA and Rhône-Alpes saw sharper falls (of 14% and 22%). In the house market, a sharp drop in sales was also seen. According to the Markémétron indicator published by Union des Maisons Françaises, 126,600 houses were sold in stand-alone schemes in 2012, a 12% fall on 2011 s figure. Sales fell in all regions and particularly in Languedoc-Roussillon, the west, PACA and Ile-de-France. New developments: supply rises and selling periods lengthen In 2012, 9,300 new homes were put on the market by developers; this is a year-on-year fall in volume of 11.4%. As the number of sales was substantially (21.1%) lower than the number put on the market in 2012, the available supply of new units at the end of the year stood at 89,900 (of which 79,800 were apartments). This is an annual rise of 23.3%, despite the slight decline in the fourth quarter. The average marketing period for houses on the market therefore lengthened to more than a year compared to 9 months the preceding year. The regions of Pays de la Loire, Aquitaine and Upper Normandy saw the most significant increases in supply. In Ile-de-France the market was under pressure despite the rise in supply to 14,600 units, with an average selling period of about 9 months compared to 6 months the preceding year. Will prices stabilise for new homes in 2013? The average price for new apartments in France continued to rise but at a slower rate: 3,872/sq m in 2012, a 2.3% increase in a year. This rise is mainly linked to the rising cost of land in areas where there is pressure on the market and to increased building costs generated by more stringent low-energy standards for builders. Given the extension of marketing times and the rise in supply, most developers have started including commercial incentives when selling homes such as offering equipment or transfer costs or both. Prices are not expected to rise further and could even fall in some markets in 2013, especially in areas where there is a high supply of unsold properties. April 2013 Residential MarketView Volume of new housing sales in France (in thousands, development channel, schemes with at least 5 units) 150 Average prices of new apartments in France 4,000 12% 120 3,000 9% 90 2,000 6% 60 52% 55% 57% 53% 49% 64% 63% 57% 1,000 3% 30 32% 37% 41% 44% 44% Sales to investors Sales to privates Annual average price (in /sq m) Annual variation (in %) Source: CGDD: SOeS, ECLN Source: CGDD: SOeS, ECLN et FPI

4 April 2013 Residential MarketView CLOSE-UP Measures introduced to support the construction industry presented in the housing investment plan The French president recently unveiled 20 measures that are intended to boost the house construction industry in France and to encourage people to make energy-saving improvements on their homes. At the end of April, the government presented to parliament enabling legislation, which makes use of orders associated with regulations that will enter into force as soon as they are published. The housing investment plan has three main aims. The government is hoping to clamp down on appeals considered "malicious" in order to make it easier for urban development and construction projects to go ahead. Therefore procedural periods for dealing with disputes on urban matters will be shortened for major developments and unjustified appeals will be sanctioned more severely. The government also intends to make it easier to build housing in zones under pressure while fighting against the sprawl of urban areas by optimizing land resources available. Dispensations to urban planning rules may be granted, with particular attention being paid to projects involving the conversion of offices into housing in Ile-de-France (see below). Measures to stimulate the construction of new developments are the government's priority with the application in 2014 of a reduced 5% VAT rate on the construction and renovation of social housing. The government wants to abolish tax incentives for holding onto building land. In the matter of energy-saving improvements, the State has agreed to a grant of 1,350 for renovation works carried out by the middle classes. Helping the construction of intermediary housing in zones under pressure by defining a clearer legislative and regulatory framework Unlike social housing that is clearly mapped out within a legislative and regulatory framework, intermediary housing does not benefit from any specific status distinguishing it from letting accommodation in the free-market sector. This situation explains the absence of an intermediary market. Yet it is clear that the development of a stock of housing with rents between that of social housing and the open market rent is badly needed in zones under pressure. Two criteria are taken into consideration to define intermediary housing: the ceiling limit on rents and the ceiling limit on the tenant's income both of which were fixed in an order dated 29 July 2004 pertaining to intermediary letting loans. The ceiling limits are, naturally, higher than those required for social housing. Housing to let for the middle market was mentioned in the housing investment plan. A suitable tax framework is now being considered so that corporate investors can invest massively in the intermediary market although nothing has been settled for the moment. The Duflot provision, aimed at encouraging investment in new constructions for the letting market, was introduced recently, however. Given the level of rents allowed, the provision focuses on the intermediary letting market. 4 Converting offices to housing: what are the real issues? In the 5 th measure of the housing investment plan, the government sought to make it easier to convert offices into housing. At the moment there are some 3.6 million sq m of vacant office buildings in Ile-de- France, 55% of these are second-hand and some no longer meet the latest specifications required by businesses. Owners have no choice when letting their asset other than to carry out expensive renovation works or reduce the rent considerably. Some landlords may therefore envisage the conversion of the office buildings into housing. But to do so involves major financial, technical and regulatory constraints so that in most cases conversions cannot be envisaged. The main barrier is the financial profitability of the operation. Making the conversion worthwhile is difficult, if not impossible. The rental income gap between offices and housing, to which one must add the cost of works, is prohibitive for owners, especially as not all offices can be easily converted. Offices are, effectively, buildings designed with very specific standards for a certain use. As such they are difficult to adapt. Windows, flooring and ceilings must be overhauled. It may also be necessary to create stairwells and lifts, redesign water circuits, plumbing and heating and ventilation circuits so that the building complies with housing regulations. Offices built in business districts and enterprise zones do not benefit from ideal surroundings for housing because there are no schools, services and public amenities, and often there are few local shops. Moreover some buildings, located next to main roads, motorways and railway lines, have excellent visibility for business purposes but are not adapted to residential use. The alternative is demolishing then rebuilding on the site. This may avoid some of the difficulties and technical obstacles, but making the operation profitable could prove impossible. The conversion of offices into housing is conceivable for period Haussmann buildings, which were residences originally anyway, but there are not many empty buildings in Paris like this that owners believe will not be let. In conclusion, the conversion of offices into housing is not really a solution to the production of housing in zones under pressure. Such conversions will remain oneoff events unless tax measures and new construction rules are introduced by local authorities that will enable investors to make the conversion financially viable.

5 Number of sales of second-hand housing in France (in thousands) Source: CGEDD according to DGFiP (MEDOC) and data from notaires Annual variation in the price index for second-hand housing (at period end) 20% 15% % 5% 0% - 5% Paris Ile-de-France Regions - 0.6% - 1% - 1.6% Sources: INSEE and Notaires de France Average prices of second-hand apartments in France at Q (in /sq m, year-on-year variation) Key: Rennes 2,300 Nantes 2,6 >+ 6% between + 3% and+ 6% between - 1% and + 3% < -1% Bordeaux 3,000 Caen 1,960 Tours 2,080 Orléans 1,970 Lille 2,980 Paris 8,270 Clermont-Ferrand Lyon 1,720 3,230 Toulouse 2,540 Montpellier 2,6 Dijon 2,200 Metz 1,840 Grenoble 2,290 Marseille 2,420 Toulon 2,200 Strasbourg 2,330 Nice 3,680 SECOND-HAND HOUSING Sales fall in 2012 The number of sales in the second-hand market dropped substantially in 2012, precipitated by a combination of several factors. Households with modest incomes or small deposits or both are concerned by the economic situation and tend to postpone or scrap their house-buying plans while other potential buyers are waiting for prices to fall, something that sellers are having difficulty accepting. Both buyers and sellers are standing their ground therefore many transactions are prevented from going through. The fall in interest rates did encourage some sellers to maintain their asking price and made negotiations with buyers harder, the latter being even more selective. Generally speaking, potential homebuyers in large cities are confronted with very high prices in the housing market. In addition, some tax incentives that had spurred on the market in recent years have been cut back or axed altogether, for example the zero-rate loan for the purchase of second-hand homes by firsttime buyers. Some 350,000 loans of this kind were granted in 2011 but the zero-rate loan is now only applicable to new housing, except in the case of acquisitions of social housing by tenants in place. In the buy-to-let and secondary residence markets, the introduction of new tax bands on capital gains and the announcement of a new law introducing a ceiling limit on rents have curbed potential buyers. Given how high prices are, potential letting yields are becoming less and less attractive. Nevertheless, despite more constraints, private investors are still interested in investing in bricks-and-mortar as the underlying wish to constitute an estate is still strong, but investors are more and more attentive to the location and the quality of assets. Notaires de France and CGEDD reported 709,000 transfers of property in 2012, a 12% fall on The market was very active in January 2012 as sales were pushed through before the introduction of the new tax framework for capital gains. The number of sales then went on to decline, standing at 657,000 between March 2012 and February 2013, a fall of 22%. In Ile-de-France, 130,050 property transfers were reported in 2012, % lower than in The slowdown in sales was particularly noticeable in the second and third quarters when the general elections in France were taking place (down 21% in a year). Slight fall in prices seen For a long time prices resisted the decline in market activity and the deterioration in the general economic climate before what appeared to be an inevitable, but was an ultimately reasonable, fall. In fourth quarter 2012, changes in the price index for second-hand housing drawn up by INSEE and the Notaires de France indicated that prices fell moderately, by 1.7%, compared to 2011 (down 1% for flats and 2.1% for houses). The wait-and-see approach of very cautious potential buyers resulted in them being more selective: properties with intrinsic drawbacks were difficult to sell and suffered the greatest price reductions. In regional France, prices fell by 2.1% in a year (1.6% for apartments and 2.3% for houses). April 2013 Residential MarketView 5 Source: Chambres des Notaires de France

6 April 2013 Residential MarketView 6 In Ile-de-France, prices fell steadily from the second half of the year to stand at an average of 5,520/sq m for apartments (down 0.6% in a year) in the fourth quarter, while on average the price of houses fell by 1%. In Paris, prices fell slightly to 8,270/sq m in the fourth quarter (down 1% in a year). Structurally, demand was still high in Paris and the inner suburbs and supply was limited, but buyers were no longer willing to outbid each other. Quality apartments were sold easily but properties with imperfections took longer to sell. Prospects for 2013: will prices fall gradually? Although the volume of sales fell rapidly from fourth quarter 2011 (except in January 2012), prices resisted the deterioration in the general economic climate before heading downwards. Nevertheless, factors propping up demand from house buyers (good demographics, the wish to become a homeowner, families splitting up and so on) feed a structurally high demand for housing in large cities. And interest rates are expected to remain low. The volume of property transfers is not expected to slump again in 2013 after the significant drop in After having falling by 1.7% on average in France, prices will continue to fall in 2013, probably by about 5%. Sellers will have to start lowering their prices if they wish to find a buyer rapidly. And unless sellers adjust their prices to the current economic slump, some will have to withdraw their property from the market. THE LETTING MARKET Clameur, a property observatory, reported that the mobility rate of tenants in the private sector (the proportion of tenants that move in the year) shrank from the start of 2012 and is unlikely to pick up again in The general economic climate is of concern and curbing the moving plans of tenants. Market rents posted an annual rise of 2.2% in 2012 (INSEE estimated consumer price increases to be 2%); nationwide the average rent stood at 12.6/sq m. At the start of 2013, Clameur reported a fall in rents, related to the fall in the number of moves in January and February, thereby slightly reducing market pressure. The amount of maintenance and improvements made to housing also declined in The decree of 26 August 2012, which bans rent increases when tenants change, does not apply to properties that have been renovated. But the type and extent of works that have to be carried out are raising questions amongst investors and may result in a status quo. Two exceptions to the no-increase rule are allowed in the decree: if the works carried out by the owner are equal to half the previous year's rent or if the rent is below market values. Substantial variations in rents exist between Ile-de-France and large cities in regional France. In Paris, the average market rent was 23.7/ sq m at the start of Average rents in large regional cities including Lyon, Marseille, Lille, Toulouse, Bordeaux, Nantes, Strasbourg and Rennes are approximately 12 to 13/sq m. Split sales of apartment blocks: the behaviour of sellers and buyers reflects the economic situation In Ile-de-France the market for splitting then selling units in apartment blocks was affected by the indecisiveness of potential buyers, much like the behaviour of buyers in general in the rest of the market. Potential buyers were extremely watchful of market conditions in general and were particularly hesitant. Many were expecting prices to fall, something that sellers were not quite so willing to enact, whether by conviction or obligation (depending on the seller). Objections to buying have multiplied, progressively forcing a certain number of owners to envisage extra light renovations, or even to revise their grid of values to stimulate the interest of potential buyers who, convinced it is a buyers' market, are increasingly demanding. The momentum of the residential market was interrupted by the defensive behaviour of buying candidates. The majority of tenants having received a notice for sale postponed their decision to buy until the last possible moment (if several notice periods are accumulated following the application of collective agreements, tenants have almost 6 months from the start of the selling period - the general information meeting - to decide whether or not they wish to buy their home). Factors curbing acquisitions included not just the price but the lack of visibility and, for a decision that requires some degree of long-term assurance, uncertainty about the future. Reduced confidence impacted two aspects underlying the intention and capacity to carry out an acquisition: one linked to the economic situation of the buyer (employment, tax, access to credit) and the other linked to the intrinsic qualities of the house compared to its price (property fundamentals). In 2013, split sales of apartment blocks have been put on hold pending future parliamentary bills that are currently being discussed including the possibility of revising notice periods that have to be given before a sale and the way commonholds are set up. However getting corporate investors back into the residential market will not be possible if the amount of red tape increases too much. Keeping a degree of rotation of assets in the market through tools such as split sales will always be important. Market rents observed in February 2013 (in /sq m, annual variation) Key: Rennes % Nantes % Greatest fall Greatest rise Bordeaux % Caen % Rouen % Limoges % Orléans % Lille % Paris % Reims % Clermont-Ferrand % Dijon.6-0.4% Lyon % Grenoble % Toulouse % Montpellier Marseille % - 0.3% Metz % Strasbourg % Nice % Source: Clameur

7 Prime yields by product 6% 5% 4% 3% 2% 1% April 2013 April 2012 Offices Paris CBD 4.25% % 4.75% % Offices La Défense 6.25% % 6.00% % Offices in regional France 5.75% % 5.95% % Class A logistics space 7.50% % 7.15% % Industrial premises 8.50% -.00% 8.75% -.50% Shopping centres 4.75% % 4.75% % N 1 retail pitches 4.00% % 4.25% % Retail parks 5.75% % 5.75% % Residential 3.30 % % 3.30% % *Well located assets, let at market conditions. As references do not systematically exist for each category, some values are estimates provided by market specialists (Capital Markets, Valuation, Research). Source: CBRE Net immediate residential prime yields Apr- Oct- Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr- Oct- Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Source: CBRE "Duflot" SCPIs The level of investment in Scellier SCPIs collapsed to 82.1 million in 2012 compared to million in 2011 and million in 20. Less attractive tax packages, combined with higher prices for new housing, automatically reduced the profitability of investments, so SCPIs tended to switch investment from residential to commercial real estate. Investment in SCPIs under the Malraux regime virtually doubled to 60 million last year, and they are expected to attract more funds in 2013 because allowances under this provision are not included in the,000 cap on tax allowances in general. Uncertainty surrounds SCPIs under the Duflot regime. Management companies do not appear to be convinced by the advantages of this new provision and for the moment, no SCPI of this type has been established. But many players have pointed out that any tax incentive mechanism is a good thing, even if ceiling limits on rents may appear too restrictive for the profitability of the operation. The government is currently examining the possibility of revising the set of measures to give them a slight boost. The Duflot SCPI tax regime may thus benefit from an extra 1% deduction for three years, that is a total reduction of 21% for 12 years. The government clearly wants to spur on this new investment product but no decision has been taken for the moment, a fact which has generated more uncertainty among management companies. As observed for the Scellier SCPI, time is needed for investors to adapt to any new mechanism and the initial results can only really be judged at the end of the year. INVESTMENT BLOCK SALES A market that still appeals to buyers... The appeal of the residential market was confirmed in this difficult period. It is a constant feature of this market that benefits from a great deal of interest from buyers who have increasingly diversified profiles. Apartment blocks are viewed as safe investments that protect capital at a time when there is pressure on other investment assets, such as bonds and euro funds, which for many years were considered risk free. In 2012 and in first quarter 2013, activity in the market for multi-housing properties was very strong despite a structural supply deficit especially for prime properties. Although the sale of two large portfolios (including that of Caisse de Retraite des Mines composed of 9 assets to several buyers) marked 2012, the market remained buoyant due to transactions on buildings sold at prices between 5 and 20 million. These assets were particularly popular with private buyers such as property traders and managed funds even though they faced drastic financing conditions. Uncertainty linked to future price movements generated a degree of caution among buyers but there were still many potential buyers compared to the few properties on the market. Quality buildings on the market were sold rapidly and did not fall in price.... but behaviour subdued by the general economic situation Institutional investors were the main players in the market for second-hand housing, mainly as sellers but also as buyers. Some investors were really interested in housing, motivated by the secure, albeit low, returns that residential investment provides. Prime yields were between 3.3% and 3.8% in April A few insurance companies, banks and mutual funds took advantage of their capacity to mobilize funds to buy more housing than they have until recently. The government also gave them strong incentives to buy and is looking into the possibility of introducing tax incentives to encourage more acquisitions. Even if financing conditions were more demanding, brokers were still in the buying market. Their activity is now overshadowed by a possible hardening of the legal framework governing the creation of commonholds in multi-tenant properties. Thus brokers are tending to wait before making decisions and are considering the possibility of including conditions precedent in future acquisitions. Landlords in the social sector have been minor players in the market for second-hand housing and have focused on renovating and maintaining current assets. They are the main players in the market for sales off plan even though finding finance and grants from local authorities proved difficult. Their acquisitions mainly involved properties in development zones, in locations where prices are controlled by the local authorities and in regional markets. Landlords in the social sector may be more active in 2013 as bills currently being discussed tend to focus on the sector of social housing. At the end of the day, SCPIs dedicated to housing were not very active in the off plan market. Many were waiting to see what was going to happen, expecting a fall in prices despite their need to invest the mass of capital collected, especially in the second half of A clearer picture of the practical implications of the Duflot regime will emerge in the months ahead. April 2013 Residential MarketView 7

8 April 2013 Residential MarketView In 2013, owners may decide to sell some of their properties to take advantage of prices that are still high and obtain a maximum value for their assets. Although uncertainty arising from possible legislative and regulatory changes tends to make players hesitant, activity in the multi-housing property market should be comparable to that in 2012 because there are still many potential buyers. Possible avenues being examined to incite institutional investors to enter the intermediary market The housing investment plan announced by the French president at the end of March includes a measure that the government wants to focus its efforts on: improving the tax framework for institutional investors so they return to the housing market, in particular houses to let at affordable rents. For several months, a working group composed of directors from developers, insurance companies and representatives from the ministry of housing and finance is examining leverage mechanisms that could be introduced to redirect some of the savings put into life-insurance companies to finance the construction of intermediary housing. While developers are highlighting levers that could potentially reduce construction costs, life insurance companies are examining conditions which could encourage them to reinvest a set amount of their funds in the construction of housing. High-end housing also affected by the economic climate Signs of a slowdown have steadily multiplied in the high-end market, which for a time was spared the turbulence in the economy but has finally been hit by the general climate of instability. Potential buyers have carefully followed general market conditions (financial and tax environment, price movements) and have been very demanding as to the quality of properties visited. They make reasonable proposals and are very cautious, particularly in the market for properties between 2 and 5 million. The high end of the market (prestigious homes sold above 5 million or for more than 20,000/sq m), which for a long time attracted very wealthy French and above all foreign buyers, slowly came to a halt in 2012 due to new tax measures, not only affecting income and capital but also non-residents. The tax on capital gains was 19%, but the government has also made sales by non-residents liable to social contributions (15.5%) and added an extra tax of 2% to 6% on the highest capital gains. This brutal increase in tax has dissuaded many foreign investors from buying in France and more and more rich French people are considering moving abroad. As for the rest of the Paris market, prices stopped rising in 2012 but they have not fallen for properties in perfect condition in contrast to ones with some kind of drawback that are now subject to fierce negotiation. High-grade and prestigious properties are now on the market at prices that are more in line with the reality of the economy. CONTACTS Research Residential Aurélie LEMOINE Head of Research Research t: 33 (0) f: 33 (0) e: aurelie.lemoine@cbre.fr David TRAN Residential Research Analyst Research t: 33 (0) f: 33 (0) e: david.tran@cbre.fr Françoise HERAUD Capital Markets - Residential Block Sale Director t: 33 (0) f: 33 (0) e: francoise.heraud@cbre.fr Renaud CAPELLE Global Private Solutions Unit Sale Director t: 33 (0) f: 33 (0) e: renaud.capelle@cbre.fr + FOLLOW US TWITTER FACEBOOK GOOGLE+ 8 Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we make no guarantee, warranty of representation about it. It is your responsibility to independently confirm its accuaracy and completeness. The reproduction of the whole or any part of this report is only authorised if its source is credited. CBRE Ressources - Economic Interest Group Head office: , rue de Courcelles PARIS - Siren: RCS Paris