+11.4% over a year: the latest Statec figures confirm an increase in housing prices in the Grand Duchy.
The latest publication of the Statec (Institut national de la statistique et des études économiques du Grand-Duché de Luxembourg), which is based on land advertising data (“Publicité foncière”) i.e. the figures recorded by the tax authorities during transactions, is unambiguous: as of the second quarter of 2019, prices increased by 11.4% over one year!
According to this organization it is a “relatively homogeneous increase in the various segments: existing apartments, apartments under construction (VEFA) and old houses”, and they also note that the trend “has accelerated in recent quarters”.
To date, the average price per square meter for existing apartments is €5,742, and the average price for apartments under construction is €6,646. And for a single-family house, the average price is now reaching €742,335!
However, this upward trend is to be considered within its European context where, though Luxembourg is ranking second behind Hungary in term of increase, this is also in line with the general trend.
The Larger the Space, the Lower the Price Per Square Meter
The reasons for this phenomenon are well known: as an island of prosperity in Europe, where the indicators are far from being green in many countries, the Grand Duchy’s supply cannot satisfy the overall demand, especially as it remains driven by interest rates that are still low and therefore attractive.
However, the statistics call for some nuance in the global picture.
First, for the same surface area, a new apartment under construction sells for a price of only 15% to 20% above an old apartment. Second, the price per square meter decreases as the surface area of the dwelling increases: for existing apartments, square meter price is €6,871 for a dwelling of less than 50 m², while it goes down to €5,465 for a surface area between 90 and 109 m².
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Strong Geographical Disparities
Eventually, location remains paramount. The further away from the capital city, the lower the prices…
Consider this: for existing apartments, the average price per square meter is €7,893 in the canton of Luxembourg when it drops to €5,241 in Capellen-Mersch, €4,991 in the East, €4,987 in the canton of Esch-sur-Alzette and €4,277 in the North of the country.
The same applies to the average price of houses: €1,157,621 in the capital and its surroundings, €791,127 in Capellen-Mersch, €710,847 in the East, €606,732 in the Esch-sur-Alzette sector and €541,756 in the North.
A Continuous Increase of the Number of Transactions
The Statec study also includes an interesting focus on the evolution of the number of transactions over 10 years. Indeed, from 5,093 apartment sales recorded in 2007, their number grew to 7,543 in 2018 (including an average of 38% of apartments sold in a state of completion).
The real estate market is therefore extremely dynamic. And in this respect, Statec notes that the favorable tax environment created by the 2016 law on capital gains has borne fruit. The supply of building land and housing for sale has been thriving in 2017 and 2018.
However, and this is where the problem lies, “the real new offer requires a sufficient number of new construction programs. Faced with the jungle of regulations on authorization procedures, a NIMBY mentality, the real estate sector is struggling to meet the challenge of responding to the housing demand. It is not uncommon for a new housing program to take 10 to 15 years to come out of the ground,” says Jean-Paul Scheuren, President of the Chambre Immobilière.
On the supply side, population growth remains unrelenting, with increasing housing needs, further increased by other societal phenomena.
Thus, the European Central Bank’s low or even extremely low interest rate policy is intended to support housing demand in the absence of alternative investments.
Rents Sharp Rise: a Consequence of the VAT Increase from 3% to 17%?
A final word on rents: the Statec reveals a spectacular gap between “the rents announced in real estate advertisements and the rents of current lease contracts”. The rents advertised (the one the incoming tenant will actually pay) are 61% higher than the current rents (€1,611 vs. €998). For houses, this difference goes up to 92% (€2,805 compared to €1,462).
“Again, the question arises as to whether this increase is not due to political errors. The increase in VAT from 3% (super-reduced rate) to 17% on 1 January 2015 for rental housing generates these effects with some delay. Though professional circles had tried to warn the government, they did not succeed in making themselves heard,” explains Jean-Paul Scheuren.
And Scheuren is further wondering: “The comparative analysis between new leases and current leases is nevertheless interesting. Wouldn’t private lessors be as greedy as politicians suggest? And wouldn’t rent cap mechanisms be more effective than some political forces would have us believe?”
The Need for a Real Property Dashboard
“Even if the figures on property prices seem to trigger a lot of bar-room discussions, it would be preferable to publish a real property dashboard to create the real basis for a real and objective debate on the property market,” concludes the Chairman of the Chambre Immobilière.