The government’s plan to stimulate the grand duchy’s property market has yet to make significant headway, according to preliminary official figures. However, the “Bëllegen Akt” has not been fully implemented, meaning results will likely take several more months to filter through to the economy, and homebuyers appear to be plunking down larger down payments.
In 2023, the Luxembourg housing market and the entire construction sector were impacted by rising interest rates and stricter lending rules. This situation became so critical that the government a “state of crisis” for the construction sector, from 1 February 2024, for six months. By the end of February, 18,166 people were registered as job seekers with the national employment agency, Adem, a 16% yearly increase. In contrast, the construction sector had 1,562 job seekers, reflecting a 44% increase over the same period, highlighting the sector’s challenges.
On 31 January 2024, prime minister (CSV), along with housing minister (DP) and finance minister (CSV), a €135m package to address the housing crisis, including enhanced tax incentives under the 2024 “Bëllegen Akt.” Meisch emphasised during the announcement, “We want to convey a message: it’s time to invest in property in Luxembourg.”
With the housing market facing stress, prices for houses, apartments and land for housing dropped to varying extents. Statec, the national statistics bureau, an 14% and 8% decline in prices for existing houses and apartments in 2023, respectively, while prices for new and under-construction properties only dropped by 3.5%. Despite this, the average apartment still cost €649,000 in 2023.
Loan aggregates
After the announcement of the “Bëllegen Akt” programme, both the government and the construction sector anticipated much-needed market support. However, data from 73 reporting banks in the grand duchy revealed that housing loans disbursed in January and February 2024 amounted to €430m and €406m, respectively. This marked a decline from €460m and €494m during the same period in 2023, according to Luxembourg Central Bank (BCL) data.
Mortgage rates also rose from 3.5% in January and February 2023 to 4.9% in the first two months of 2024, which may have contributed to the lukewarm response.
However, it is also possible that the lower loan volume in February was due to some homebuyers being willing to part with their savings or reallocate investments to benefit from lower prices and opt for larger down payments. This means they rely less on larger loan amounts. This possibility is supported by the fact that households withdrew over €660m from deposits with initial maturities of up to one year in January and February combined.
Another notable trend was the decrease in the total outstanding housing loans held by Luxembourg households, which dropped to €40.908bn by the end of February 2024, the lowest since June 2022, data from Eurostat shows. This decline indicates that households are making larger repayments to reduce overall interest costs on existing loans compared to taking out new loans.
Too early
A representative of the ministry of housing told Delano that currently, “it is too early to draw conclusions about the impact of these measures.” The spokesperson clarified that the measures announced in the stimulus package to support the construction sector and access to housing are in the legislative process. Therefore, “they are not yet legally effective.” The ministry hopes that the vote in the parliament will take place before the summer. Nonetheless, the government is “confident that, through the financial and fiscal support for households and businesses, the market will stabilise in the medium term.”
Statec will publish first quarter 2024 housing prices in June.