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Are you a homeowner when you borrow for the long term?

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Does the current context call into question the notion of property?  Response with the Notaries of France, the chief economist of the Edmond de Rothschild group Mathilde Lemoine and the economist and essayist Marc Fiorentino.


© Sipa

Does the current context call into question the notion of property? Response with the Notaries of France, the chief economist of the Edmond de Rothschild group Mathilde Lemoine and the economist and essayist Marc Fiorentino.


Soaring purchase prices, fixed interest rates that keep dropping, and lengthening loan terms: the real estate market continues its ultra-dynamic momentum, and the stone is still considered a safe haven in a context of health crisis. However, the question arises of the feelings of the new owners and the future of this improvement.

“The investment in the stone is indeed remunerative”

It is with many questions and great modesty that David Ambrosiano, the President of the Superior Council of Notaries, opens the last exchange of the year, on the theme of low rates and long loan terms: “I do not I do not have the answers to these questions, but I am passing them on to our two brilliant guests! ” With a smile, he poses the issues of the day: is crediting the banker’s raison d’être? The loan period often exceeds twenty years: is it serious doctor? Shouldn’t we take advantage of historically low rates (1.05% in the third quarter of 2021) to borrow more, over longer periods, to invest in several projects?

Before getting to the heart of the matter, Mathilde Lemoine, renowned economist in both the public and private sectors, goes back to the basics and recalls the nobility of the right to property: “It is enshrined in the Declaration of Human Rights The system is superior to collectivism in that the decisions made within the system are more effective than those of an enlightened leader! From an economic point of view, the problem is managing scarcity. of law is to define the conditions for competition between men to take place in a peaceful manner. “

What interests the economist is the way of organizing these relationships between men, and not unilaterally between men and the thing. [le bien immobilier]. The right to property is based on three inalienable principles: it is individual, exclusive, and freely transferable. So how do we live together, manage scarcity and make good use of our precious natural resources? And what are the macroeconomic issues in a context of low interest rates and long loan terms?

According to Mathilde Lemoine, the risks are limited, on the one hand because 60% of variations in real estate prices result from real rates, and on the other because 99.4% of credit production in 2020 was made at fixed rate. In addition, the share of loans over a period of twenty-five years is low (8.3%). The subject is not so much the risk of no longer being the owner, but rather the risk relating to banking players, as loans to households have increased sharply: the economist recalls that household debt amounts to 102% of their disposable income!

“So you are really an owner, yes, and investing in the property is indeed remunerative when compared to the risk-free rate. To be an owner, I remind you, is to have the freedom to dispose of your property.” Mathilde Lemoine concludes on the essential role of notaries, who are the guarantors of the right to property, a supreme right.

“To be an owner is above all to be free”

Marc Fiorentino agrees: “I found the subject very specific, and the question well written. So, I had fun deconstructing it!” The economist and author of The Best Investments for Dummies knows the real estate market well, which he describes as multidimensional, because it is placed at the epicenter of all the revolutions of our time. The first questioning the question asked by the notaries: a demographic revolution, which places life expectancy above 80 years. “Borrowing at twenty-five today is equivalent to ten years in the 1960s. In the past, when we talked about life insurance, we felt stuck for eight years, the impression of a life!”

For Marc Fiorentino, the extension of the loan period does not therefore call into question the right to property. In addition, in recent years there has been an explosion in the money supply, which was supposed to push up inflation. However, not only did interest rates collapse, there was no inflation, rather a tendency to deflation. This is where demography comes in: the drop in the number of births all over the world combined with the lengthening of the lifespan generates a major deflationary power.

The second revolution is that of low real rates [le taux d’intérêt nominal diminué du taux d’inflation], which are almost negative. The economist then asks himself: “Are we really in a loan? Lending at 1.25%, or at a negative rate for the ECB … Does not the loan become a loan and an investment?” The notion of property is therefore not called into question, neither by low rates, nor by the duration of the loan. On the other hand, Marc Fiorentino underlines that in the real estate market as in all markets, it is the fixing of the price which is no longer a market data. There has been no longer a bond market since the 2008 financial crisis: rates are now subsidized by central banks. We are therefore not calling into question the property, but the level of pricing.

The economist takes the height to conclude: the main asset today remains the oldest in the world. It’s counterintuitive in a world that constantly values ​​the sharing economy, and yet the obsession is the same for everyone, including young people and first-time buyers. Real estate is at the center of demographic, digital, societal, sociological and monetary revolutions.

Mathilde Lemoine bounces on the response of Marc Fiorentino, who according to her introduced the notion of “the price of time”. A direct consequence of low rates, because, in economics, the rate is the price given to time to give up immediate consumption. Here, time has no price, and in fact the duration of the loan no longer makes much sense.

The two economists have, with different but agreed visions, answered the question of the day. David Ambrosiano sums up this beautiful dialogue by underlining the human aspect of their respective speeches: “The right to property is linked to the relations between men. It is the most effective system to ensure their survival. Owning is before all be free. “



The real estate market in Q3 2021 (Le Club du droit / DR)


© Chloé Rossignol (Le Club du droit / DR)
The real estate market in Q3 2021 (Le Club du droit / DR)

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