10 000 € per square meter in Luxembourg City

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The bar has been crossed. Based on prices recorded by notaries, the average cost of an existing apartment in 2020 is €10 263 per square metre, compared to €4 375 in 2010 (+8.9% per year over 10 years). The average increase over 10 years in the country is equally impressive, with the average price per square metre of an apartment in 2020 at €7 014, compared to €3 664 in 2010.
 

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08/04/2021 |
  • Nexvia

Nexvia rigorously follows the ?gures published by the Observatoire de l'Habitat for the needs of its online property valuation tool.Therealestatecompanygivesitsanalysisofthe residential real market evolution, and what the potentialshort term limits could be.

The growing speed of real estate prices throughout the country iscon?rmedbytheo?cial data published today: +16% in 2020(after+9%in2019and2018).Andthisonaveryactive market with a transaction volume similar to 2019 despite the lockdown that froze transactions for 2 months. What is the explanation?

The key element remains the strong demand for housing,drivenbyademographicgrowth and a relatively inelastic o?er. Even with a lower recorded population growth in 2020, the backlog of housing demand almost guarantees medium-term pressure on the market.Itis estimated that a yearly de?cit of 3 000 dwellingshas been accumulated since 2010.

The pandemic has only had a limited impact on the residents' ?nances, and trust remains high in Luxembourg despite the situation. Moreover, the very accommodating monetary policieshavemadeitpossibleto?nanceatevenlowerratesuntiltheendof2020(upto1% for borrowing periods of 20 years and more).

Finally, housing has become a higher priority for everyoneasaresultofthelockdown,with home o?ce becoming commonplace. Potential ?rst-time buyers who had little interest in the subject had time to analyse the advantages of owning a home in Luxembourg, and families have taken a much more active interest in ?nding largerproperty,oftenpreferring houses with gardens.

Nevertheless, Nexvia notes that the current high prices are limiting the pool of buyers for properties on sale,andthatthebalancebetweensupplyanddemand,inlinktopricelevels, now seems close.

The ?nancial, regulatory and ?scal developments since the beginning of 2021 suggest that the frenzy over the last few years will be curbed and that thefutureevolutionofpriceswill return to more reasonable levels.

Interest ratesonloansof15yearsandmorehaveincreasedsincethebeginningoftheyear (+0.35% on average), which reduces the ?nancial capacity of buyers. These same buyers who are often already at the maximum monthly amount they can a?ord to pay for their mortgage (average e?ort rate of 43.6% for ?rst-timebuyers).

Since 1st January, investors have been a?ectedbylessfavourableregulationsandtaxation. They must have a minimum equity contribution corresponding to 20% of the price of the property as well as 100% of the auxiliary costsinordertoconsiderapurchase.Inaddition, the reduction of the accelerated depreciation rate to 5% makes the operation less attractive from a ?scal point of view.

However, the property market has solid foundations, and the latest developments do not suggest that prices will fall. Yet, it appears that owner-occupiers are gaining ground on investors, who are less numerous in the current conditions. We can also observe a very strong interest for large properties with exteriors in the periphery (as demonstrated for example by the price increase of 32% over one year in Steinfort or 30% in Walferdange), and a lower interest than usual for Luxembourg-city.

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