Wednesday 04 January 2017

Housing prices in Luxembourg


A sustained supply, but prices increasing
 
The effervescence in the property sector remains a reality in Luxembourg. The Grand Duchy, which experienced (virtually) no financial crisis, saw soaring prices and an expanding supply. Given predicted growth of up to 60% in office property and 50% for residential property between now and 2020. For investors this is inspiring …
 
 
Some tore their hair out and railed against the property price explosion. Others were rubbing their hands with glee. In Luxembourg, accommodation is hard to find and expensive. According to the Institut national de la statistique et des études économiques [National institute of statistics and economic studies] of the Grand Duchy (Statec) and the Observatoire de l’habitat, in the second quarter of 2016, the average price index for housing prices saw an increase of 5.6%; +7.7% on the previous year. The average price per square metre for existing apartments was €4,613/m2, and for apartments under construction this was €5,764/m2. The average price of a single family house quickly rose to €594 379; and this is only an average figure. In short, buying or renting an apartment or house is becoming increasingly difficult, all the more so for those with modest incomes. For the moment, Statec states that a single person can still come out on an income of under €2,000 a month, and that a couple with two children can have “a decent standard of living” with €4,000 a month. They will however need to devote at least half of their budget to housing. According to some professionals, it is even necessary to spend an average of €1,359 to rent an apartment, of any size…
 
The price of success
It is true that the Grand Duchy, a sound, highly reputed financial centre, has experienced economic success that is the envy of its European neighbours: GDP has more than tripled in twenty years or so, while in Europe it has only doubled. As for the working population, this has doubled during the same period. All this has been against a background of economic stability. Furthermore, according to the European Commission, “Luxembourg has a healthy financial sector, whose risk factors can be described as limited”. There is still a green light from the indicators, but prices are soaring: “The prices for residential accommodation have almost doubled in real terms during the 2000-2014 period”, Statec reminds us. For the country as a whole, the price of accommodation has increased by over 35% since 2004! Between 2013 and 2014, average house and apartment prices have increased by 7% and 2.9% respectively. And demand is not about to tail off. Every year, between 8,000 and 13,000 new residents knock on the doors of the Grand Duchy, whereas only 2,500 to 3,500 new residential units are placed on the market.
 
Increases across the board
Concerning the rental sector, the smaller surface areas are the most sought-after. Price increase: 3% in the last six months. The same trend can be seen for houses with a minimum of four bedrooms. The average rental for an older house, for the whole range of surface areas, is €2,460.

The larger surface areas remain in the sector for purchase. With older buildings, prices are increasing by 4.35% a year in the case of apartments, and 3% for houses: it is necessary to pay on average €410,925 for an apartment and €694,636 € for a house (across the entire range of surface areas). The new build sector is also doing well, with a price increase of 3% in one year. One would need an average budget of €495,825 for a new apartment, across the entire range of surface areas. Investing in “bricks and mortar” is therefore still an excellent prospect. But there are regional variations in these figures.
 
In search of square metres
The country has a finite capacity, and in places the square metres are simply lacking. There is one constant here: the closer one gets to Luxembourg-Ville, the more complicated things become. The Grand Duchy, which has a surface area of 2,586 km2, one way or another has to accommodate its 576,249 inhabitants. According to the Observatoire de l’habitat, the land property potential is still significant: 10% of the country’s total surface areas corresponds to urban zones or zones that will be allocated to urban development. And, between the north and the south, price variations persist. In the far north, the average price of a house is €525,528; and €331,892 for an apartment. In the central-southern area, these figures are as much as €984,493 for a house and €615,694 for an apartment. Living close to one’s place of work is now becoming something of a luxury. This is true to the extent that some have opted to live in France or in Belgium… “A growing number of Luxembourg citizens with moderate incomes will have to move to the peripheral regions, or even into the bordering countries”, the property professionals predict. Over 11,000 Luxembourgers have already crossed the border. Those who can stay, are, for the most party, property owners: 85% of the national residents. Nearly 50% of foreign residents have opted for renting. As for social housing, there are over 2,000 applicants registered on the Fonds du logement (FdL) [housing fund] waiting list. However, there is no shortage of property development plans: a thousand residential units should become available in Dudelange, Esch-sur-Alzette, Belvaux and in Wiltz. The Kirchberg plateau should also be able to accommodate nearly a thousand new social housing residential units. This can only contribute to further enhancing the attractiveness of the Grand Duchy.

Emilie Di Vincenzo