Luxembourg’s property market showed signs of revival in Q1 2024 with a 9% annual rise in number of residential dwelling sales and the fastest pace of loan issuance since 2015, data from Statec, the ministry of housing’s housing observatory and the Luxembourg Central Bank (BCL) shows.

Transactions

According to the housing observatory, 1,351 houses and apartments were sold in the first quarter of 2024, marking a 9% year-over-year increase and the highest number of transactions in the past six quarters. However, the number of sales for apartments under construction remained subdued, with only 92 sales deeds registered in Q1 2024, the lowest count since records began in 2007.

One potential reason for this is the significant price difference between new and existing apartments. In Q1 2024, the average sale price for apartments under construction was €9,340/m2, nearly 22% higher than the average price for existing apartments, which stood at €7,670/m2, Statec data shows. This contrasts with a smaller price difference of 7.7% in 2022. Statec does not provide average floor prices for detached houses.

Additionally, according to data from the Registration Duties, Estates and VAT Authority (AED), the average selling price for an apartment under construction in Q1 was €797,000, about 35.8% higher than the €586,800 average for existing apartments, making existing apartments more attractive to potential buyers. Houses sold for an average price of €868,800, nearly 19% lower than in Q1 2023.

Statec, which excludes outliers in its reporting, noted the average sale price for new apartments at €713,670 and for existing apartments at €594,351 in Q1 2024.

Loans

Reflecting the increase in sales volume, the total amount of housing loans issued for residential properties in Luxembourg rose to €1.011bn in Q1 2024. This marks a 28.6% jump from the previous quarter and is the first increase after seven consecutive quarterly declines, according to BCL data.

This quarterly increase is the fastest pace recorded since 2015, suggesting that banks likely offered more favourable loan-to-value ratios. The higher loan amounts were also reflected in average loan sizes, with house loans increasing by 5.6% to €506,000 and loans for apartments rising by 7.9% to €376,700.

However, this increase in loans for purchasing houses did not extend to the construction sector as a whole. Loans for property developers in Q1 2024 were among the lowest since 2018, amounting to €92m. This figure represented a 72% decrease compared to €333m in Q4 2023, indicating that property developers were significantly lagging in their future outlooks.

However, the number of building permits has increased over the last two quarters.

With prices per square meter for future builds rising marginally amidst falling sales in Q1, the construction sector faces overall upheaval. Future price developments are likely to be rocky, as the inventory for new builds is expected to be smaller and if potential buyers were put off by consistently high prices, offloading projects under development or achieving pre-sales for new projects might be difficult, stretching delivery timelines and potentially dampening the market further.

This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .