, CEO of the Luxembourg Bankers’ Association (ABBL), emphasised in an interview on Tuesday 8 April 2025 that the real bottleneck in the Luxembourg housing market lies with developers, not banks or households. Grbic stated that developers have been slow to adapt to changing market conditions, with their failure to lower prices contributing significantly to the current stagnation in the housing sector.

Grbic argued that whilst banks are continuing to offer financing at reasonable rates for existing properties, the situation with new developments is different. “We have a price decrease of around 9% in new construction and houses that need to be built, and that’s still too expensive,” he explained. Historically, the price difference between new builds (Vefa projects, or vente en l’état futur d'achèvement) and existing apartments was around 8%, but now it has surged to 28%, making it difficult for developers to sell their units. This pricing gap has led to a backlog of unsold apartments, with larger developers able to absorb the losses.

Trust and pricing adjustments

Grbic pointed out that restoring buyer confidence is another crucial element in reviving the market. He argued that in addition to pricing adjustments, developers must work to rebuild trust with potential buyers. “The pricing needs to come down, and the trust of the buyer needs to be rebuilt,” he said. He explained that some developers have started offering fixed prices, which account for inflationary changes but give buyers certainty about costs. Despite these efforts, many developers are still hesitant to reduce prices or acknowledge the benefits of initiatives like Prolog, which aims to offer transparency and secure financing for projects struggling to meet pre-sales targets.

Financial challenges for developers

The developers are facing difficult decisions regarding the pricing of their projects. Grbic explained that developers who have financed land purchases and development costs with bank loans must decide whether to lower prices in order to make sales or continue to hold out for better conditions. He pointed out that as interest rates rise, the margins on real estate projects are eroded. “When you have interest rates of 5%, it eats up your margin,” he stated. He warned that if developers are unable to repay their loans or cover interest payments, banks will be forced to classify these loans as non-performing, potentially leading to the forced sale of properties.

According to Grbic, larger developers are potentially waiting for smaller developers to default on their loans in order to purchase their projects at reduced prices. He explained that this dynamic further exacerbates the market’s struggles, as smaller developers face pressure to sell at a loss, while larger developers can expand their portfolios at lower costs. Grbic acknowledged that this trend highlights the ongoing imbalance in the sector, where smaller, financially unstable developers are most at risk.

Economic outlook, slow recovery

Grbic also discussed the broader economic outlook and its potential impact on the housing market. He acknowledged that global events, such as US trade tariffs and inflation, would affect Luxembourg’s economy. However, he pointed out that the country’s relatively small export sector would help mitigate some of the more severe effects felt in other nations. Grbic expressed confidence that Luxembourg's banking sector, particularly in trade finance, would remain resilient despite these external pressures.

Looking ahead, Grbic offered a cautious forecast for the next 12 months in the housing market. He said, “I don’t have a crystal ball, but from what I see now, the most important factor for potential buyers is the ability to repay their loans at sustainable interest rates.” Whilst some areas of the market, such as existing properties, have shown signs of stabilisation, Grbic cautioned that challenges persist in new construction. He concluded that while the broader economic environment, both domestically and internationally, would continue to impact the housing market, the recovery of Luxembourg’s housing sector hinges on developers taking decisive action to drive new construction projects and rebuild buyer confidence.