It is a fact that investors are no longer really favoring the real estate sector in Luxembourg. Indeed, without regular and significant increases in property prices that allow for capital gains, interest in this type of asset is diminishing, and better returns can be found in other sectors (e.g., startups).
The government has already done a lot to help, and it must be acknowledged that this has not had great success in the new construction market. We should not forget that the state also needs resources to function, making it essential to maintain healthy finances.
On this side, in the longer term, what could help improve the situation is administrative simplification that would allow for faster development. Today, it sometimes takes years to obtain authorization.
Also, being able to build higher would limit the impact of the land on the price per m². Some authorities want such a measure but others do not want to hear about it.
Therefore, waiting for the return of investors is, in my opinion, a mistake.
Problem or Opportunity?
The market remains gigantic; many people want to live in Luxembourg and buy property there. The reduced competition with investors works in favor of those looking to settle down here. There are still significant opportunities for all companies that are more or less involved in real estate or construction.
Of course, for this to succeed, certain conditions need to be met:
1. Most people want space. Reducing the square footage beyond a reasonable amount clearly decreases the attractiveness of the property.
2. Properties lacking outdoor spaces (balconies, terraces, or gardens) are no longer appealing; this is a COVID effect.
3. Prices must be adapted to the net disposable income of households; otherwise, properties will not be financed by banks.
Unfortunately, not all players will be able to keep pace with this trend. Consider the companies that have bought land at very high prices. There have already been and will continue to be bankruptcies; this is the harsh reality. Those who can adapt to this new market situation will sell. In doing so, they will safeguard employment, help the population acquire housing, and keep the entire country attractive. The stakes are high!
The illustration in the article represents the price per m² for a 2-bedroom apartment of 80m² that can be financed by a certain percentage of the population. The graph is based on statistics of the net disposable income of households (STATEC).
The assumptions made are outlined below.
- Budget of €80,000 for ancillary areas (terraces/balconies, cellars, garage/parking)
- Interest rate: 3.5%
- Down payment (equity): 10% of the apartment price
- Debt ratio: 40%
- Loan duration: 30 years
As usual, this is just one example among many, but it provides a trend.
It is also clear that the price per m² depends on the location. The statistics were calculated based on the national average.
For an apartment of the chosen size, a price per m² exceeding €9,000 will only be accessible to 30% of the population. A price around €6,500/m² will be accessible to half of the households.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
