Trends in the Luxembourg real estate market

Are you planning to move to Luxembourg? It should be noted that real estate prices are high due to a shortage of housing. New construction is not enough to meet the growing demand. Especially since 2023 seems to mark the end of the road in terms of new real estate projects.

The year 2022 marks the end of double-digit price growth. The year 2023 looks rather gloomy from the point of view of real estate agents. It must be said that the rise in interest rates on real estate loans does not facilitate borrowing. Here is a summary of what you need to know about housing before buying or renting in Luxembourg.

The latest real estate trends

What to expect in 2023?

Real estate specialists in Luxembourg are expecting a drop in real estate prices for sales. In concrete terms, real estate loan applications have decreased since the end of 2022. The number of registered transactions has already decreased by 14% year-on-year. Prices are down nearly 2% from March 2022. The main cause is the rise in interest rates.

In contrast, rents are expected to continue to rise in 2023. According to Immotop, the price per m2 for rental reaches its peak in March 2023, with an increase of more than 4% in a sliding year.

Prices to slow down in 2022

After years of overheating, the year 2022 marks a slowdown in real estate prices. The change compared to Q4 2022 shows a 5.6% year-on-year increase, a far cry from the double-digit price increases seen in previous years.

First and foremost, there has been a sharp decline in the number of transactions. Sales of new apartments fell by almost half (-48.3%), while the number of transactions for old apartments fell by -17.8%.
Financial volumes fell by 50.1% for new apartments and by 18.7% for existing apartments.

The drop in interest in new construction is explained by the loss of appeal for investors: high costs indexed to the cost of construction and delivery times that are lengthening due to problems with the supply of materials against the backdrop of the war in Ukraine. In addition, rising interest rates are reducing the base of potential buyers.

This deceleration is not reflected in new construction prices. Manufacturers continue to charge high prices. While the price of new homes continues to rise by 9.4%, the price of old apartments is up by only 4.4% and that of houses by 3.8%.

The end of 2022 marks an upward trend in rental prices. The leases signed in the last quarter show an increase of 8% over one year for apartments and +6.9% for houses. Less than 13% of rental ads are for houses, and this proportion tends to decrease even more. The market is still very small, which means that a higher rent increase is to be expected?

What should we remember about the real estate market?

Falling sales prices, rising rents

Luxembourg continues to attract a working population in search of work, but also a high-end clientele. They are looking for a privileged and secure living environment.

However, the housing shortage remains a major issue for the country.

The average price of an old apartment was around 5,000€/m² at the end of 2017. In July 2022, a price of 9.208 €/m² was reached. In March 2023 (source Immotop), national prices are established at an average of 8.876 €/m ² with 11.240 €/m ² for the region Centre.

New home prices continue to hover around 15,000 euros/m2. In Luxembourg, parking lots can cost up to 130,000 euros, or even more than 200,000 euros per square meter in certain areas of the city center.

Rentals are now set at an average monthly price of €24.25/m² on a national average.

Location, a key factor

There are of course disparities in real estate prices in the Grand Duchy. The Canton of Luxembourg remains without question the most expensive. The average budget for the purchase of a house is more than 1,000,000 euros, which is twice as much as in the north of the territory. The further away from the city of Luxembourg, the more affordable the prices.

The prices per m² in the canton of Luxembourg are on average 9.203€/m² in new and 8.495 €/m² in old. These are to be compared with the prices in the north of the country at 5,227 €/m² in the new and 4,424 €/m² in the old. Between the two, the prices decrease between the region of Capellen/Mersch, the eastern region and the region of Esch-sur-Alzette.

Regarding houses, it will take an average of € 1,207,225 to acquire a house in the canton of Luxembourg, € 848,777 in Capellen / Mersch and € 563,470 in the north, which is less than half compared to the capital.

Differentiated prices according to the type of housing sought

The surface or the type of housing are determining elements for the prices. Overall, prices per square meter decrease with the size of the apartment. It is true that small surfaces play into the hands of investors, who pull the market upwards .

An apartment under construction is subject to a 15 to 20% increase in price compared to an old apartment of equivalent size and located in the same area. However, we note today in 2022, that investors are beginning to lose interest in new properties in favor of older ones. The returns are indeed more interesting and the delays of availability of the goods less long. With Covid, the construction sites are experiencing delays that are difficult to resolve due to a lack of raw materials.

Land prices have clearly contributed to the rise in new home prices. This increase is all the more important in urban areas. On average, housing prices increased by 5.7% between 2010 and 2019, while building land prices increased by 7.0% annually over the same period.

What prospects?

The government is currently looking for new measures to give oxygen to a real estate market lacking in supply.

Municipalities are now aiming to increase the share of multi-family buildings or two-family homes versus single-family homes. Only 15 of the more than 100 municipalities have a majority of their housing stock in apartments. Among them, the top three with the city of Luxembourg 80% of apartments, Esch-sur-Alzette 69.4% and Hespérange 63.1%. In concrete terms, the stock of single-family homes, which are largely represented with 82.8% of residential buildings in 2019, is decreasing. The share of apartment buildings in total housing construction is increasing. They now represent more than 16% of the housing stock since 2001, compared to less than 7% before 1919.

But when we talk about a population of over 1 million people in 2060, what are the prospects for the future? In order to prepare the country to accommodate these new residents, decreasing the size of housing units could be considered in order to increase the number of offers. Legislation could also change to allow for higher occupancy rates, such as renting out unoccupied rooms .

But today it is mainly a question of seducing owners to free up land, when they have no interest in seeing prices fall. According to a recent study by the Observatoire de l’habitat, 84% of potentially buildable land is owned by about 50 private individuals and companies. The next finance laws should be made in this sense.

Retrospective of the last few years

The years 2020 and 2021 will be marked by price increases of over 10%.

The containment of 2020 and the widespread use of telecommuting have once again marked the increase in housing prices. These years still see the 2019 increase confirmed with housing price increases of 14.5% in 2020 and 13.9% in 2021, respectively .

New constructions are multiplying, not only in Luxembourg city but also in the whole country. New projects are constantly being developed (see real estate market). But these projects are not enough to stop prices from rising.

Individuals are looking for exteriors, made essential during containment, and investing in their interiors. It is necessary to count at the end of 2021 on average 1.371.000 euros for a house in Luxembourg.

The capital Luxembourg-City remains very popular and prices are exploding even in the surrounding areas. The north of the country is increasingly in demand, especially thanks to the Nordstrooss (highway to the north). Prices are still affordable. The south continues to attract, due to lower prices and good connections to the capital. A fast tramway will connect the Cloche d’Or district in Luxembourg to Esch-sur-Alzette, via Foetz, in less than a quarter of an hour by 2030.

Price increases in the real estate industry are increasing more in Luxembourg than in other European countries, which is proof of the growing interest of clients in this destination.

A first price surge in 2019

Housing figures released in Q4 2019 by The Housing Observatory and Statec confirm the overall sentiment. Real estate prices have soared over the past 12 months. Housing saw an 11% increase in prices over 1 year from Q4 2018 to Q4 2019!

This increase is global and more or less homogeneous between the different types of housing for sale. House prices increased by +9%, new apartments by +12.4% and old apartments by +12.1%. Prices at the end of 2019 are €6,057/m2 for existing apartments, €7,145/m2 for apartments under construction.
As for single-family homes, it now costs an average of 789,474 euros to acquire a property in 2019, which is 40,000 euros more in just 2 quarters.

As a result of the Brexit and the arrival of foreign workers on the Luxembourg market, the existing imbalance between housing supply and demand has increased. Despite the many projects underway, the future supply of new housing is not keeping pace with theincrease in population.
The popular districts of Luxembourg such as Limpertsberg, Belair, Kirchberg, Grund and Merl remain safe havens. Prices in these neighborhoods remain at the same level. In the rest of the country, the south is accelerating its development. In the west, the municipality of Steinfort is regaining its attractiveness thanks to investments in infrastructure projects. The North of the country is finding a new interest due to the development of road transport networks. Prices are more affordable. The municipalities of Ettelbruck, Diekirch and Wiltz are the most dynamic today.

The introduction of free public transportation allows properties located near the networks to increase in value.

2018, continuation of the real estate rise

In 2018, the market is seeing a record 7% increase in prices over the previous year. According to experts specialized in residential real estate, over the last 10 years, this increase was rather of the order of 5%.

The increase in prices is especially evident in the market for older apartments. In this sector, the increase is close to 10%! As for new apartments, they increased “only” by 6% in 2018 compared to the previous period. House prices also increased, but less significantly. This price growth is general throughout the country, especially in the south where there is rapid growth.

The attractiveness of Luxembourg in terms of population inflows seems to be the main explanation for this price increase. In 2018, more than 11,000 people moved to Luxembourg, which represents 1.8% of its total population. The constant increase in residents is no longer in line with the supply of new housing. More than 6,000 additional apartments would have had to be provided in 2018 to cover the demand. The supply of new units was barely 2,600. In addition, the very low level of bank interest rates offered for loans is supporting the demand for real estate acquisitions. This is helping to drive prices to record levels.

The prices recorded at the level of rentals also increased significantly in 2018. This increase was particularly noticeable in the neighborhoods of Bonnevoie, Gasperich, Merl and Belair. We note an increase of 6 to 8% in the Station district alone.

2017 marks the beginning of the upward trend

Whether in the old or the new, property prices in Luxembourg jumped in 2017 by 4.10% for houses and 4.70% for apartments. These figures peaked at 6.10% for properties under construction. At that time, a new apartment is valued on average 25 to 30% more expensive than an old apartment of the same surface. The average price of an apartment was thus established at 420.000€, against 690.000€ for a villa.

The joint report of the Housing Observatory and the Statec (National Institute of Statistics and Economic Studies) is unequivocal at this time. The Grand Duchy appears to be a safe bet and very popular with investors. The high quality of the real estate and the attractive tax system make Luxembourg an investment country. In 2017, there was an increase in transaction volume of +12% across the country.

Why become a homeowner in Luxembourg?

Learn more about housing in Luxembourg.

Source: Observatoire de l’Habitat – Liser

Photo credit: Liser