The coronavirus crisis has not led to falls in house prices in Luxembourg - quite the opposite!
A booming property market, coronavirus, low mortgage rates… the Luxembourgish property market drives many to despair. In an interview with Vincent Quillé, managing director of Nexfin, we try to shed some light onto this complex issue. This is a condensed version of an interview by our colleagues at 5 Minutes.
Vincent Quillé, "managing director" for mortgage brokers Nexfin. / © Nexfin
Did the health crisis influence the approach of buyers?
Vincent Quillé: "There is definitely a before and after in buyers’ behaviour. People have more questions about the market in general, such as “should I buy now, or should I wait?” Less so on the terms of borrowing. But the market is still there. Buyers ask more questions, but they still want to buy.”
Are there more fears about buying?
V.Q.: "Banks are definitely being a bit more cautious. They may ask for a higher deposit or look more closely at debt ratios, job tenure or risk of unemployment, as well as the property value. […] The bank’s risk is in the value of the property, since this is their guarantee. So if the price is too high, they will refuse the mortgage or ask the buyer for a higher deposit. But they also won’t hesitate to say no if they estimate that their incomes will be too low.”
How are buyers reacting to the crisis?
V.Q.: “At Nexfin, we have seen fewer applications for rental investments. This is now a sector that wants cash. For new starters in the property investment market, it is getting harder.
What we’re seeing more of, however, is “home sizing” – people in their forties who want to move from an apartment to a house. After the lockdown, people want to feel good in their home. […] People say, “I want a garden. I want a terrace. I want some space.” Only a few people can afford that in the city.
Is the profile of the buyer changing?
V.Q.: "For single buyers in Luxembourg, it is extremely difficult, even on a good salary. This is especially true for first time buyers. It is easier for couples, but still a challenge. It’s different for residents who already own a property which will have appreciated in recent years. They can now look for a house or a larger apartment. They have a definite advantage over first time buyers.”
And yet, people need housing…
V.Q.: "Banks are more willing to assist those looking for a primary residence, because people need somewhere to live, for sure. Lending terms are stricter for investors. You can finance a primary residence over 30 years or more. For a rental investment, you are looking at 20-25 years with a higher own investment.”
A few years ago, people talked about a property bubble in Luxembourg. Will the bubble burst?
V.Q.: "It is often said that trees won’t grow to the sky. In my experience over the past 15 years, the market was always said to be too expensive, and yet, it has kept going and here we are today, still in the same situation. I don’t know if you can call it a speculative bubble. Prices are high because the demand is there: people who have the means are moving here and buying. […] There is no reason for the market to collapse as long as there is demand.
Of course this also depends on the economic development of the country. There are several factors making prices rise: rental investments, demand from residents, net immigration, demand being higher than supply…”
Doesn’t the country risk becoming the victim of its own success? Or has this already happened?
V.Q.: "We can say that in terms of the property market, Luxembourg is the victim of its own success, as its attractiveness is causing a price surge. This disadvantages less wealthy buyers. But the large businesses, financial centre, investment funds, European institutions… this attractiveness is also a sign of stability!”
What advice do you give to your clients today?
V.Q.: "If I could give one piece of advice, it would be to take your time, especially when you start looking. It is also important to evaluate your financial means before deciding on a property. I know it is complicated, but I sometimes see young people who have come to us for a mortgage, and then they call us saying “I’m afraid, I no longer want to buy this property”, because they sense that they have bought something too expensive. Buying is so difficult, so people sometimes decide too quickly, then worry that they’ve made a mistake. And it’s clear that if everyone took their time, it would slow down the market frenzy. Which is clearly not happening.”