House prices are on the decline for the fifth consecutive quarter, with the overall index falling by 14.4% year-on-year in the final quarter of 2023, according to figures published by Luxembourg’s statistics bureau on Wednesday. Over the year 2023, compared with the previous year, house prices fell by 9.1%, after rising by 9.6% in 2022.

By housing type, the biggest fall in prices was for existing homes, which fell by 18.8% between the last quarter of 2022 and the last quarter of 2023. Over the same period, prices of existing flats fell by 14.5% and those of new flats by 7.6%. For new flats, while the fall in prices was less marked, the number of transactions was in freefall: -72.8% fewer transactions (with just 106 sales). This is less than the number of transactions for existing flats, which fell by just 28.6%.

Taking 2023 as a whole, Statec pointed out that the fall seen in the last quarter of 2023 is less significant than in previous quarters. “The overall index fell by 2.1%, returning to its level at the end of 2020.” Over 2023 alone, the sharpest fall was seen in the third quarter, with a general index of -6.6%.

Transactions and financial volumes also down

In the case of flats (both new and existing), the number of transactions was down by 42% (749 flat sales) in the fourth quarter of 2023 compared with the same quarter of the previous year. “This is the lowest number of transactions recorded over a quarter since the Publicité Foncière database [of public property transaction records] was created in 2007. The number of flat sales thus remained below 900 transactions each quarter during 2023,” stated Statec.

The financial volume of flat sales was also down (-48.8%), in line with the fall in the average price of flats sold. For existing flats (643 sales in the last quarter of 2023), the number of transactions and the financial volume were down (-28.6% and -35.9% respectively). As for flats under construction, where sales are falling, the financial volume is following the same trend, with a drop of 75.8%. “The number of transactions is therefore eight times lower than the average for the years preceding the health crisis. This should be qualified, however, by the fact that the fourth quarters of 2017 and 2018 corresponded to regulatory changes”, stressed Statec.

In the market for flats under construction, the situation could be explained by a number of factors highlighted by the Statec, such as “the declining attractiveness of new homes for rental investors”, rising interest rates, the declining purchasing capacity of first-time buyers, and “uncertainties over the future price of a home purchased under a buy-to-let scheme, due to indexation to construction prices”.

For houses, on the other hand, although prices are falling and the number of transactions is also down (-21.2%) between the end of 2022 and the end of 2023, activity is picking up slightly, with financial volume up by 20.7% in the fourth quarter of 2023 compared with the previous quarter.

Same trend for building land

Activity on the building land market is also on a downward trend: -64.2% of transactions compared with the fourth quarter of 2022. “With just 158 transactions, activity is at a much lower level than in the years preceding the health crisis (734 sales on average over the fourth quarters of 2017 to 2019).” The same logic applies to the financial volume associated with these transactions: down 69.7%.

“However, this is not necessarily a generalised fall in land values: average prices are also influenced by composition effects (changes in the geographical location of sales, differences in the surface area and level of density permitted on the land sold, etc.). These compositional effects are particularly important in the context of a very sharp fall in activity,” Statec warned.

Rents are rising

In its study, Statec also looked at rent trends. For flats, the trend follows the law of supply and demand. As access to property becomes more difficult, demand for rentals is increasing, and with it, rental prices. “The latest data on property advertisements show a 3.9% year-on-year increase in advertised rents.” They are higher in the capital and neighbouring municipalities. “Within the canton of Luxembourg, the municipalities of Luxembourg City, Strassen and Bertrange, which concentrate a large part of the rental market, have the most expensive rents, on average almost 40% higher than the national average.”

Originally published in French by and translated for Delano