A 6.4% drop from the second quarter of 2022 to that of 2023: the fall in house and flat prices is accelerating, according to the latest figures, published on 26 September, from the Housing Observatory and Luxembourg’s statistics bureau Statec.
In the previous edition of their joint “Housing in Figures” publication, the two institutions in March in prices between the third and fourth quarters of 2022, something that hadn’t happened since 2015. Even so, the figure for the final quarter of 2021 was still +5.6%.
The fall at the start of 2023 reflects the long-term nature of this price decline. It also, however, conceals a number of disparities. The cost of old houses has fallen by 13.5%, and that of old flats by 4.5%. On the other hand, the cost of flats under construction (ventes en état futur d’achèvement, or VEFAs) has risen by 2.2%.
Falling house prices in 2023. Source: Land registry, ECM. Calculation: Statec. Screenshot: Statec and the Housing Observatory
“These trends relate to notarised deeds registered in the second quarter of 2023, which means that the vast majority of sales agreements were signed before the end of April 2023,” explain Statec and the Housing Observatory. The house price index is calculated “on a constant quality basis,” i.e., changes in the structure of properties are accounted for.
6.7% rise in rents
The average cost of a square metre of “old” property is €8,634, while the average cost of a square metre of new property is €9,813. Unsurprisingly, prices fall as you move away from Luxembourg City. In the capital, a square metre costs €10,728 for an existing flat and €12,927 for a flat under construction, compared to €8,309 and €9,967 per square metre, respectively, in Capellen-Mersch; €7,893 and €8,336 in Esch-sur-Alzette; €7,911 and €8,498 in the east; and €6,769 and €7,189 in the north.
Selling price per square metre of flats. Source: property advertising, Statec and Housing Observatory calculation, transactions from 1 July 2022 to 30 June 2023. The Capellen-Mersch zone comprises the cantons of Capellen and Mersch. The eastern zone comprises the cantons of Echternach, Grevenmacher and Remich. The northern zone comprises the cantons of Clervaux, Diekirch, Redange, Vianden and Wiltz. Screenshot: Statec and the Housing Observatory
Within the capital, the sections north of the city centre--specifically from Merl-Sud to Weimerskirch via Limpertsberg--are more expensive than those to the south. The exception is Gasperich, where prices are higher than in other districts close to the centre (Cessange, Hollerich, Bonnevoie), due to the development of the Cloche d’Or district.
Rents have eased slightly, stabilising at +0.2% in the second quarter of 2023, according to property advertisement data supplied by Immotop.lu to the Housing Observatory. Even so, the year-on-year rise remains at +6.7%, which is “significantly higher than the rise in measured consumer prices (+3.4%) over the same period.”
34.7% fewer old flats sold, VEFAs down 63.2%
“Interpretation of the fall in sales prices should be take into account the decline in activity on the property and land markets,” the housing ministry said in its press release. “We can hypothesise that sellers who agree to a price below their initial expectations do so because they are forced to sell (for example in the case of bridging loans), and that the number of transactions remains limited precisely because some potential sellers prefer to wait rather than lower their price. In the new-build flat segment, it seems that a majority of developers prefer to wait and not sell their planned properties, rather than lower their prices.”
The number of transactions is falling in all areas: by 34.7% in one year for existing flats and by 63.2% for those under construction. The related financial volumes are therefore changing proportionately (-34.7% for existing properties, -63. 5% for new builds). A total of 869 flats were sold in the second quarter. This is “around half the number of transactions recorded on average in the years preceding the health crisis” (1,849 transactions on average in the second quarter between 2017 and 2019), comments the Housing Observatory.
Fall in flat transactions. Source: Land registration file, Statec and the Housing Observatory in partnership with the Registration Duties, Estates and VAT Authority. Screenshot: Statec and the Housing Observatory
With regard to the slowdown in sales of pre-fabricated flats, this is “a trend that began two years ago, but the level of activity has plummeted since the middle of 2022, and even more sharply since the beginning of 2023.” The Housing Observatory points to a number of factors, including “a decline in the attractiveness of new homes for rental investors due to the rise in interest rates (which makes property investment more expensive, while at the same time making certain alternative investments relatively more profitable), the reduced purchasing capacity of first-time buyers due to the rise in interest rates, and uncertainties over the future price of a home bought off-plan, due to indexation to construction prices.”
However, they continue, “this last factor has gradually disappeared, as many developers have opted to change their pricing system, with the final price set for the buyer in the VEFA contract.” Some new flats may also have been marketed under conventional sales contracts after completion of the building, which could exaggerate the extent of the fall in the number of new flats marketed.
421 homes and 233 plots of land sold
421 houses were sold during Q2 2023, which is 46.8% fewer than a year earlier and “less than half” the levels seen during years preceding the health crisis (on average, between 2017 and 2019, 942 houses were sold during Q2). The associated financial volume fell by 51.7%.
Decline in house sales. Source: Land registration file, Statec and the Housing Observatory in partnership with the Registration Duties, Estates and VAT Authority (2007-2023). Screenshot: Statec and the Housing Observatory
House building is not faring any better, with sales of building plots down by 52.4%, i.e. 233 transactions. This level is far less than sales during the years before the pandemic: on average, 507 building plots were sold during Q2 in 2017-2019. The financial volume fell by 64.1%.
Fall in house sales. Source: Land registration file, Statec and the Housing Observatory in partnership with the Registration Duties, Estates and VAT Authority (2007-2023). Screenshot: Statec and the Housing Observatory
Statec and the Housing Observatory report a “slowdown in the growth of building land prices that dates back a few years: +10.4% between 2020 and 2021, then +5.9% between 2021 and 2022. The deceleration in building land sales prices therefore seems to precede the slowdown in house price growth.”
Four cycles in the last 50 years
The Housing Observatory has also published a study of house prices over the last 50 years. It highlights four cycles, with episodes of rising prices followed by short periods of falling prices.
The Housing Observatory’s analysis of the rental market, meanwhile, illustrates significant growth in furnished accommodation in recent years. In 2022, furnished flats will account for 11.6% of the rental supply, compared with under 3% in 2010-2012. Rental prices for such flats have risen comparatively faster, at +4.8% on average over 2010-2022 versus +4% for traditional flats.
This article in Paperjam. It has been translated and edited for Delano.