The FNR has approved €697,000 over three years to fund the project examining the impact of government intervention on the housing market Pexels

The FNR has approved €697,000 over three years to fund the project examining the impact of government intervention on the housing market Pexels

According to the University of Luxembourg, national research body the FNR has approved €697,000 in funding for the three-year project, whose findings will be particularly relevant to Luxembourg where real estate and the mortgage market play a major role as financial sub-sectors.

“Luxembourgish banks provide the backbone for a well-functioning real estate market in the country. At the same time, the real estate market attracts active assets management,” said professor Ulf von Lilienfeld-Toal of the Luxembourg School of Finance.

Specifically, the study will examine externalities in the real estate market and consider how investors should react to them in designing investment products, mortgage products and investment decisions; the price of the real estate market and responses to different housing subsidies from the perspectives of households, banks and regulators.

Luxembourg is a prime testing ground for studies since it has experience rampant real estate prices increases. Average residential real estate prices rose by 40% in Luxembourg from 2006 to 2016.

Meanwhile, Luxembourg’s Central Bank recently reported that real estate was overvalued by on average 6.85% from 2012 to 2017. According to Eurostat, almost nine out of 10 Luxembourgers owned their own homes. The ESRB found that half of Luxembourg residents had a mortgage on their home, with mortgage debt rising to 120% of disposable income in 2016.