Demand for housing is very high in Luxembourg, but new construction is not enough to meet it, especially since no new real estate projects are planned for 2023. In addition, borrowing is made difficult by the rise in interest rates on mortgages. Indeed, since the end of the year 2022, transactions on the Luxembourg real estate market have decreased by 14% due to the rise in interest rates. According to Immotop, "the rental price per square meter peaks in March 2023, with an increase of more than 4% over one year". You have to spend more than a million euros to buy a house in the canton of Luxembourg. However, when you move away from the Canton of Luxembourg, the average prices are affordable, especially towards the north of the territory; which makes renting a key factor. Indeed, in the Canton of Luxembourg, the average price per square meter is 9203 euros in new buildings, and it is 8495 euros in old buildings. However, in the north of the country, this average price is 5227 euros in new real estate, and it is 4424 euros in old real estate.
As for private investors in the residential segment, they remained cautious, even absent from the market, because they were suffocated by monstrous interest rates (more than 4%), suffocated by galloping inflation (6%) and by a limited return (often less than 3%). These facts greatly stifle investors' interest in residential real estate and force them to be cautious when acquiring real estate; which has the effect of further reducing sales.
It should however be noted that the drop in sales has a positive aspect: "real estate speculation is at a standstill". Why is this a plus point? Usually, real estate speculation bets on a future price increase of around 10 to 15% per year; it turns out to be rather risky. This can be seen in the number of building permits granted in the first nine months of 2022; down sharply from the first nine months of 2021.
[...] But faced with these speculators, investors looking to build a cellar are often disarmed. Economic speculation is defined as a set of financial operations in which an investor is aware of the price fluctuation in the market in relation to a specific asset. Knowing this, he hopes to make a profit while his price is low, in order to buy and sell when the price is high. Independent property sellers and owners can be likened to urban speculators; who seek to obtain economic advantages based exclusively on price variations over time. [...]
[...] Figure 5 : Number of apartment sales and financial volume corresponding to these sales Source: STATEC - Housing Observatory (2010-2022) This drop in activity on the market for apartments under construction is part of a trend observed for eight quarters. It is probably explained by the combination of several factors, in particular: 1. a decline in the attractiveness of rental investors due to the rise in interest rates (which makes real estate investment more expensive, and at the same time relatively more profitable alternative investments); 2. [...]
[...] Moreover, the sharp rise in the prices of apartments under construction must be placed in the context of the sharp drop in activity in this segment: the majority of developers have obviously chosen not to lower the selling prices of the goods marketed, even if it means find it difficult to sell them. Figure 7 : highlighting the deceleration in house prices relative to consumer goods inflation Chart 7 above highlights the deceleration in real estate prices, in real terms, ie in relation to consumer goods inflation. In 2020, the rise in real estate prices reached around 15% over twelve months, with inflation limited to or 2.5%. [...]
[...] Finally, the Chamber of Trades calls for better targeting of individual housing aid and simplification of building permit procedures. Currently, it takes approximately 7.3 years to obtain permission to bring out a subdivision of land. This time is very long and must be shortened. Currently, there are two types of housing aid, namely the Climate Plan and the Housing Pact. This aid will benefit the municipalities through the "Special support fund for housing development"; this is on the one hand aid for the construction of affordable housing, with a view to sales or rentals, with a participation in the financing of 61 million euros from the year 2023, and on the other share of the "Housing Pact 2.0" component up to Euro10 million in 2023. [...]
[...] In the light of these definitions and the analyzes that we have carried out above, we can look at the general state of the Luxembourg real estate market. 3.3- Character of the Luxembourg real estate market In Luxembourg, it has been established that Luxembourg residents are more and more turned towards renting because of the rise in interest rates in particular, which slows them down in their access to property. Unfortunately for Luxembourg residents, the housing available on the real estate market will become increasingly scarce in the future and we must reflect on the priority solutions that must be implemented to respond to the housing shortage in Luxembourg. [...]
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