The Luxembourgish property market is experiencing its umpteenth crisis at the start of 2023. Following a price explosion, interest rates have been raised multiple times in a row, a factor that has changed the situation.
Read also: Rent prices climbing since late 2022Julien Licheron, researcher at the Housing Observatory, told our colleagues from RTL 5 Minutes in December 2022 that “we had somewhat forgotten” how much the Grand Duchy’s housing market depended on interest rates.
While a downturn in activity had already been observed in 2021 and 2022, few could have predicted the situation in which the market currently finds itself.
Two heavyweights in the construction sector have recently sounded the alarm, urging the Luxembourgish government to intervene in a bid to get the housing market out of its standstill.
During the Housing Conference on Wednesday, Robert Kuhn, head of one of the country’s oldest construction companies, asked for “aid over a twelve-month period.”
Minister for Housing Henri Kox partially agreed to this request by announcing that he was in favour of increasing the tax credit on notarial instruments (“Bëllegen Akt”) and exempting future-completion sales (VEFA) from registration fees.
But would this be enough? Not according to Marc Giorgetti, who said on Thursday that “we are in the midst of a construction crisis” in an interview with RTL Radio. He believes that a decline in activity will not result in a drop in prices.
Giorgetti pointed out that just to meet demand, Luxembourg needs to build 5,000 housing units per year. However, as things stand,construction companies will already struggle to build more than 2,000 homes in a year.
The Housing Observatory proposes two probable scenarios. Everything will depend on the behaviour of sellers, i.e., builders and developers in the Grand Duchy. Because one thing is certain, interest rates will not be falling any time soon.
Contacted by our colleagues from RTL 5 Minutes, Julien Licheron explains that “either sellers decide to wait before lowering their prices,” in which case " we will see a very dramatic decline in activity in 2023 but a very moderate drop in prices or even an increase in prices.”
The other possible scenario, according to Licheron, is that they “mostly anticipate a drop in prices and agree to reduce their sales targets, allowing activity to pick up again but at lower prices.” He adds that both scenarios seem “possible” to him.
In the long run, Licheron believes that a return to a “modest increase” in house prices is conceivable. “The base indicators are good, demand remains structurally strong, and supply remains restrained by access to land,” he said.
