Historically, property has a positive image in Luxembourg
This is especially among investors for whom it represents a secure capital, with a solid return and with a high revaluation potential. Even though it is hard to predict the future, real estate in Luxembourg has increased 4,5% per year on average, reaching up to 6% in 2016. Moreover, Luxembourg has remained resilient to the 2008 crisis – setting the most cautious investors’ minds at ease.
An average gross yield for a property in Luxembourg City is between 3% and 3.75%. The rule of thumb is that the safer the perspective in an area, the safer the investment, and the lower the gross yield.
Taking in account the no-limit deductibility of interests, contracting a debt to finance your buy-to-let investment in a growing market is much more profitable than using your own funds only. Through a fixed rate loan and taking in account the current market situation, you can take advantage of a close to 1% mortgage interest cost on your whole investment period.
To compensate the housing shortage due to the country’s population growth, the Luxembourgish government has taken several measures to incentivise property investment :
- The fiscal depreciation on the property cost. Depending on the age and the state of the property, the depreciation rate will vary significantly. This allows investors to take advantage of a fiscal depreciation rate of up to 6% in the case of an off-plan property.
- The deductibility of the various costs bared by the owner. Bank interests and charges linked to the property financing, rental management costs, property tax, maintenance and repairs, insurance premiums are all examples of deductible costs. When paired with the fiscal depreciation, the taxable rental income is often very low. Potential savings can be transferred onto other taxable incomes.
- A favourable taxation on the capital gain. Two measures can lower your capital gain tax when selling your property. The first is the € 50,000 decennial tax cut (€ 100,000 for a couple). Additionally, a taxation cap is set to half of the global income tax rate (meaning 22,89% in the worst case).