Economy & Politics

Real estate prices continue to soar

Although the covid crisis has hit Luxembourg since mid-March 2020, its impact appears to be non-existent on the cost of houses and apartments, according to data published by Eurostat. Growth still exceeds 10% per year.

Although the covid crisis has hit Luxembourg since mid-March 2020, its impact appears to be non-existent on the cost of houses and apartments, according to data published by Eurostat. Growth still exceeds 10% per year.

(jm with Nadia Di Pillo) – The hoped-for slowdown in the soaring property prices directly linked to the pandemic has not taken place. According to data released Thursday by Eurostat, Luxembourg continues to record a strong increase in the value of real estate as last year. Around 13.9% over one year, between the third half of 2019 and 2020. Far from the 5.2% recorded at European level over the same period.

If the data for the whole of 2020 are not yet fully known, the year may be historic as it should register a price increase well above 10%. Far from the levels recorded before 2018 where annual growth was more like around 6%. “You have to take a closer look at various elements in order to be able to carry out a market analysis”, assures Jean-Paul Scheuren, president of the Real Estate Chamber of the Grand Duchy of Luxembourg (CIGDL) to our colleagues from Luxemburger Wort.

Indeed, in a small country like Luxembourg, it is quite possible that the statistics are skewed over one or two years, especially when large real estate projects are put on the market at the same time. “This can have a bigger impact on annual statistics,” he says.

TC, Wohnungsbau, Housing. Yesterday: Kirchberg. Photo: Gerry Huberty / Luxemburger Wort

While spirits remain focused on the evolution of the pandemic, voters polled for the November 2020 Politmonitor have other realities in mind. Those related to real estate, traffic jams or the future prospects of future generations.

European data shows that new apartments have seen their prices increase by 10.8%, while existing apartments have increased by 15.3%. As a result, the average price of a new apartment in September 2020 was 583,072 euros, or 7.63 euros per square meter. A year earlier, it was still 529,286 euros and “only” 485,235 euros in 2018. For existing apartments, it was necessary to pay on average 561,481 euros compared to 494,918 euros a year earlier. In 2012, the same property was sold for 322,642 euros

According to Jean-Paul Scheuren, prices have climbed significantly in the south of the country. “Esch-Alzette, with its new district of Belval, has clearly caught up with the other municipalities”, he assures us. Real estate prices have also reached new highs in many other cities. But this Luxembourg growth is no exception at European level. According to a press release from the European statistical office Eurostat, between 2010 and the third quarter of 2020, rents increased by 14.6% and house prices by 26.8% in EU countries .

Comparing the third quarter of 2020 to 2010, real estate prices rose sharply in 23 Member States: Estonia (+ 105.1%), Hungary (+ 92.2%), Luxembourg (+90 , 5%), Latvia (+ 83.6%) and Austria (+ 81.3%) experienced the largest increases.

Beyond prices, the real estate market should experience other developments this year, which will have consequences for tenants and owners. First, the good news: Anyone considering buying a house or apartment will likely have to pay virtually no interest on their loan this year, either. Most experts believe that the central bank will continue to support the economy in 2021. Therefore, capital market yields are expected to remain low for now – and with them construction interest rates.

Construction or repair of the rural house

The state wants to protect individuals from over-indebtedness linked to the purchase of a property, and banks from the collapse of the speculative bubble. From January 1, 2021, belt tightening concerning the amount of possible loans.

The bad news, however, is that house prices will continue to soar in 2021. Home loans will therefore become more difficult to obtain. As are the new building permits. Indeed, many construction procedures had to be interrupted for weeks due to the pandemic in 2020.. “Last year’s building permits are this year’s construction projects,” recalls Jean-Paul Scheuren.

In addition to cash flow issues on the customer side, some contractors have experienced material delivery difficulties or labor shortages, resulting in significant construction delays in some locations. “If the old projects are not finished, you cannot start the new ones”, emphasizes Jean-Paul Scheuren. These delays will also have an impact on the price of construction – and indirectly on the supply and demand for real estate.

Ehemaliges Stahlwerksgeländes Esch / Schifflange - ARBED - Esch-Schifflange - Foto: Pierre Matgé / Luxemburger Wort

The future development of brownfields will transform the landscape with the consequence of strong population growth. But the creation of these new housing zones will have to go hand in hand with a diversification of the employment market.

Among the novelties, two important legislative changes are also planned this year. The accelerated depreciation rate for new buildings acquired after January 1, 2021 and classified as rental accommodation will be reduced from 6% to 5%, and the application period will be shortened by one year to five years. This will apply to owners whose depreciable assets do not exceed one million euros. According to Jean-Paul Scheuren, “this will not deter investors, but will have an impact on rents”. The president of CIGDL believes that these have not increased so much in recent years, but that this could now change.

In addition, Luxembourg banks have been subject to new standards for mortgage loans since January 1, 2021. From now on, the ratio between the amount borrowed and the value of the property at the time of signing the loan is a maximum of 80%. This means that the potential buyer’s contribution must be 20%. If you add expenses, insurance, remaining debts, etc., you get about 20-30% equity. “This can eventually lead to a reduction in demand,” says Jean-Paul Scheuren. For first-time buyers, the loan can be granted up to the full value of the property – without exceeding the 100% limit. If we add the costs, “it can also become more difficult for some first-time buyers to obtain a mortgage.”


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