The property development sector--with 1,105 companies and sales of €2.4bn--is the target of the Luxembourg competition authority’s 100-page study. The study was triggered by the sector’s known difficulties, especially since the start of the year, which saw the government set up a cross-sector task force.
“Between 2010 and 2020, sales [by property developers] increased by a factor of 2.7 and gross operating surplus by almost eight, while the number of companies was 1.6 times higher than 10 years ago. As the number of homes built over the same period was very low, this means that, year-on-year, the property developer business has become increasingly profitable, despite the large number of new companies entering the market,” says the study.
“Only” 16 of the 32 companies contacted agreed to respond to the authority’s request. These “16 companies own or exercise influence over more than 400 property development companies in Luxembourg and abroad. Ten of the companies questioned stated that they were part of 116 temporary associations or collaborative projects, all related to property development. The number of associations per company varied, ranging from one to 38, with an average of 12.”
“The authority does not share the criticism levelled at the public authorities regarding the insufficient development of the land they hold,” it wrote in its conclusions, drawn up after speaking to 16 interlocutors and 83 private companies and public entities.
- Developers are urged to remain vigilant with regard to compliance with the competition rules applicable to cooperation.
- A better framework for the development phase of “PAP nouveaux quartiers” projects (plans d’aménagement particulier, or special development plans), with legal deadlines and administrative simplifications, would speed up the adoption of PAPs while reducing developers’ land holdings.
- Against a backdrop of rising land prices and low property taxation, the authority has not analysed the practices, alleged or real, of Landbanking in the light of competition law, even though it is established that speculative behaviour in terms of land ownership contributes to soaring prices by restricting the supply of housing. With regard to invitations to tender and auctions, the competition authhority recommends that all stakeholders pay particular attention to the possibility of bid-rigging when selling a property.
- The legal monopoly of banks on issuing completion guarantees is unconstitutional and hinders the activities of insurance companies. The authority recommends that it be abolished.
- The authority proposes upgrading and regulating the profession of estate agent, following the example of the Chambre immobilière, in order to curb so-called “bidding race” behaviour.
- The authority recommends the formal repeal of the amended grand ducal regulation of 20 January 1972 setting the maximum commission scale in order to clarify the current legal situation.
- The authority encourages other methods of remuneration for agency services, such as the amount expressed in euros or an hourly rate, which would have the advantage of being more transparent and of better assessing the amounts of commission.
This article was first published in French on Paperjam. It has been translated and edited for Delano.