The Luxembourg Real Estate Market: rental investment

Nevertheless, a recent report by the European Systemic Risk Board (ESRB) [4] analysed the evolution of real estate markets in different EU countries and noticed high prices and a considerable indebtedness trend in Grand Duchy households. Following this report, draft law no. 7218 [5] was recently adopted to allow the national regulator, the Commission de Surveillance du Secteur Financier (CSSF), to impose caps on the attribution of new loans.

This refers to borrower-based measures which, among others, impact the minimum investment of personal funds as well as maximum redemption: i.e. the ratio between expenses and monthly income.

Such measures already exist in several European countries such as Ireland, Finland and the Netherlands.

Three main factors could limit this increase. A sudden rise in interest rates, a substantial fall in positive net migration or a massive increase in housing supply would have an impact on prices. We do not anticipate such changes at present, however. Of the three factors mentioned above, we believe that only an increase in supply could have a beneficial effect for the resident population.

The Observatoire de l’Habitat estimated that there was approximately 2.719 hectares of undeveloped land stock in 2013 [6]. According to the General Development Plan (PAG), more than three-quarters (75,6%) of total available space for housing in municipalities belongs to individuals (natural persons) and 16,4% to legal entities, with public bodies only owning 8% of the surface area.

The increase in housing supply will therefore necessarily rely on private players, with the involvement of public authorities.

It all depends on the individual's personal situation. A person or household wanting to buy their own home must make a number of choices.

A compromise often has to be made between property size and proximity to the workplace.