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Temporary measures put in place with retroactive effect from 1 January 2024:
Introduction of an investors’ “Bëllegen Akt” (tax credit) for rental investment purposes, applied to off-plan sales of €20,000 per person, i.e. €40,000 per couple, valid for a purchase in 2024 to be let for at least two years.
Accelerated depreciation rate increased to 6% over six years. Valid for buy-to-let off-plan residential sales completed in 2024. The amount is capped is €250,000/year.
Reduction of the tax rate to 10% of the real-estate capital gain transferred to a residential property let as social housing in Luxembourg or to residential property belonging to energy performance class A+. Minimum holding of two years to benefit from this rate.
Tax exemption of 90% on net income generated from residential property made available to rent as social housing.
In Luxembourg, the percentage of owner-occupiers is significantly higher than in other European regions and countries. The time when everyone aspired to become a homeowner could be coming to an end, however. This change is driven by rising interest rates, high property values and significant housing costs weighing on household budgets, despite a downward trend in prices due to the crisis that began in early 2022 (war in Ukraine and soaring inflation).
The rental market is expected to continue to grow, providing opportunities for investors, as every tenant needs a landlord.
More and more residents therefore appear to be opting to rent rather than buy, either out of necessity, because they have less access to bank financing or out of choice. This reflects a generational shift, with some favouring long-term rental in order to benefit from greater flexibility and enable them to explore other saving options.
Production levels stand at around 4,500 housing units per year. However, the country will need at least 6,000 to 7,000 units to house newcomers to the market and renew the housing stock, according to researchers at the Luxembourg Institute of Socio-Economic Research (Liser). This represents 5,000 new homes that have not been built over a two-year period, exacerbating the housing shortage. Ultimately, people need somewhere to live, whether they buy or rent.
There are reasons to be optimistic however. The market is expanding, with an upward trend in rents, mainly for the newest and best-located properties.
On Wednesday, 31 January 2024, the Prime Minister and the Finance and Housing Ministers unveiled measures designed to achieve three objectives: to build more housing, offer a wider choice, and make it easier to buy or rent. Luc Frieden also confirmed that he wanted to “boost the construction sector”.
These measures include, among other things, the following points that are of particular interest to investors:
The factors determining the value of a property today should be taken into account when making any investment in the market. Firstly, the energy performance of the individual property or communal building has become decisive, given the movement in energy prices and new standards and regulatory requirements. This is a major issue, as highlighted, for example, by discussions in France on banning the rental of properties that do not meet energy performance criteria. In other words, the value of energy-intensive properties is set to fall rapidly due to potential difficulties finding tenants.
This trend could have a significant impact on existing housing stock compared to new-build, with a sharp decline in the value of buildings requiring upgrading.
The second crucial criterion often observed is location. The property must be easily accessible, well served by public transport and close to various services such as childcare facilities, schools and recreation centres.
It is essential to remember that property investment must be considered over the long term, whether for personal use or for rental, rather than with a view to reselling the property after only a few years. From a rental perspective, it is crucial to consider the long-term attractiveness of the property in order to guarantee its occupation.