According to the latest report from the Observatoire de l’habitat, activity in the real estate markets is down overall, even if the situation is very heterogeneous depending on the segment.
Luxembourg real estate is not celebrating with regard to the third quarter of 2022. Compared to the same quarter of the previous year, the sector is experiencing more or less sharp declines in its activity depending on the segment.
It is the sale of new apartments that is suffering the most with a market that has shrunk by 36% compared to 2021. According to the Observatoire de l’habitat, “this is the lowest number of sales ever reached since we have had the Land Registry file, with that of the 3rd quarter of 2009.” Overall, the sale of apartments (new and old) fell by 17.7% with 1,307 transactions for this third quarter. A figure lower than the average for the years preceding the health crisis.
The impact of rising interest rates
“The financial volume corresponding to these transactions (nearly 907 million euros in the 3rd quarter of 2022 alone) only fell by 13.4% compared to 2021, which reflects the increase in the average prices of apartments sold”, notes the Observatory of the habitat. With 1,010 sales this quarter, the sale of existing apartments has only dropped very slightly (-10%) and remains close to the average of previous years.
This drop in activity on the market for apartments under construction is part of a trend noted for eight quarters. It is due to a combination of several factors:
- a decline in the appeal of rental investors in the face of rising interest rates (which makes real estate investment more expensive)
- the decline in the purchasing capacity of first-time buyers for the same reasons
- uncertainties about the future price of a home purchased off-plan (sale in the future state of completion), due to indexation on construction prices
Home sales down 12.6%
For the housing market (mainly made up of old buildings), the drop in activity is also visible compared to the 3rd quarter of 2021: transactions are down 12.6%. Activity is even at a much lower level than in recent years (760 sales this quarter, compared to 940 on average between 2017 and 2019). “The financial volume associated with these transactions fell much less sharply (only -3.5%), which also reflects an increase in average house selling prices. »
Activity on the market for the sale of building land also slowed down sharply and fell by 25.1%. With 406 transactions, it is at a lower level than in the years preceding the health crisis (on average 478 sales of building land).
Ever higher prices
The housing sale price index provided by STATEC (including both existing housing and housing under construction) increased by 11.1% between the 3rd quarter of 2021 and the 3rd quarter of 2022. In detail, the increase in indices over one year amounted to:
- +8.3% for existing apartments;
- +7.9% for existing houses;
- +18.3% for apartments under construction.
These increases remain in line with those of the different quarters even if that of apartments under construction seems “abnormal” in the eyes of the Observatoire de l’habitat.
Rising rents
Unsurprisingly, advertised rents also increased significantly in the 3rd quarter with an increase of 2.1% compared to the previous quarter. Over twelve months, the increase nevertheless remains clearly lower than that of the sale prices of housing. On the other hand, those of houses have remained stable over the last twelve months (+0.1%). “It should be noted, however, that the indicator of advertised rents for houses is very volatile”, nuance the Observatory of the habitat.
The increase in rents during the lease is also very moderate. With an increase of 1.7%, it is even well below inflation on consumer goods, according to figures from STATEC (+ 6.7%)