Lockdown exit at Spuerkeess
Spuerkeess has continued to offer a complete banking service over the whole lockdown period. While temporary restrictions on counter transactions could not be...
High property prices are a direct consequence of the clear imbalance between supply and demand for housing in our country. On the one hand, the population saw a 20% growth from 2010 to 2018 (from 512.029 to 613.894 residents).
Firstly, the housing supply is struggling to keep up with the increase in the number of households.
Approximately 80% of this increase is due to the arrival of new residents from abroad, with the remainder coming from the naturally higher number of births than deaths. Economic growth in recent years has favoured job creation, especially in the tertiary sector, and has attracted a large number of newcomers.
The relocation of activities to Luxembourg due to Brexit has, and will, continue to have an impact on demand for real estate. In March 2019, Luxembourg for Finance reported that more than 50 institutions had publicly announced their relocation to Luxembourg. That level of growth does not exist on the same scale in neighbouring countries.
On the other hand, the availability of new dwellings does not match the population increase. In the West, there are an average of between 2 and 2,5 people per household. According to the latest projection from STATEC, this means that between 5.600 and 7.500 additional housing units a year need to be created depending on the economic growth scenarios. Only 2.891 housing units have been completed on average per year since 2010, compared with an annual surplus of 5.390 households.
The very low rate level mitigates the effects of rising prices.Michel Zimer
To take an illustrative example, a redemption of EUR 2.000 at a rate of 1,50% allows a loan of more than EUR 550.000 over 30 years, whereas if the rate were 5,50% the borrowing capacity would be limited to EUR 350.000. The imbalance in the market between supply and demand combined with low rates is certainly helping to push up prices.
Furthermore, although the rental yield may have fallen in recent years, it remains attractive in this low interest rate environment.
The increase in construction costs (inflation, energy performance requirements) and VAT are also, to a lesser extent, factors explaining the increase in prices.
However, we consider that these reasons are marginal compared to the aforementioned factors. The 2015 increase in VAT for rental properties from 3% to 17% also had an impact on housing prices.
With a market share of close to 50%, Spuerkeess is in a good position to measure price differences throughout Luxembourg. As such, we have identified seven regions with different price points, and it comes as no surprise that Luxembourg City and the outskirts have the highest prices. We can also confirm the observation made by the Observatoire de l’Habitat that the increase in price per square metre depends on the distance from downtown and the time spent commuting, whether by public transport or car. This explains why prices in the Alzette Valley, for example, with its efficient rail network and access to the North motorway, are higher than in other regions that are located at the same distance but do not have these quick connections to the city.
Our studies show that real estate prices per square metre depend on several factors.Michel Zimer
On average, our analyses show a price increase of around 9% in 2018. We are also seeing a continuation of the price increases in 2019. The Observatoire de l'Habitat and STATEC reach similar conclusions.