RTL Today - Real Estate: Prices set to continue falling in Luxembourg

Luxembourg's property market is experiencing a downward trend in prices that is anticipated to persist in the coming months.

The decline in property prices has garnered significant attention in recent months, and for good reason. Such a situation has not been observed for nearly 15 years.

Up until now, estimated price drops relied solely on advertised prices. However, things changed on Tuesday with the release of the latest data from the Housing Observatory.

These figures hold substantial credibility as the Observatory derives its averages from notarised deeds. They also confirm the trends previously announced by the atHome group in recent weeks.

The latest publication from the Housing Observatory confirms the fall in selling prices, with an overall decrease of 1.5% over a 12-month period. The report specifies, "this decline was primarily driven by the existing homes segment, which experienced a drop of 4.3% over the course of twelve months."

Although the situation is less glaring in the case of off-plan flats (-0.4%), and there has even been a slight increase in prices for existing flats (+0.4%), the Housing Observatory stresses that the price decline "is particularly notable when compared to the fourth quarter of 2022."

The falling prices are not the only concerning aspect, as there has also been a sharp decline in activity.

As expected, the segment most affected is flats under construction, which witnessed a staggering 72.5% decrease compared to the first quarter of 2022. Existing flats (down 41.5%), houses (down 42.9%), and building land (down 41.4%) are also facing a similar decline.

The situation is unlikely to improve in the months ahead. According to the Housing Observatory, indicators of falling prices suggest that "the downward trend observed in notarised deeds will continue into the second and third quarters of 2023." In addition, a decline of approximately 7.2% in flat prices and 4.7% in house prices is anticipated.

In May, the European Central Bank (ECB) announced another increase in interest rates, which is expected to further impact the borrowing capacity of potential buyers. It is therefore highly likely that prices will continue to fall in the upcoming months.

Rents continue to rise

Rental prices, on the other hand, continue to surge. While prices in the sales market decline, rents have been rising at an alarming rate for several months now.

During the first quarter of 2023, rents witnessed an 11.1% increase compared to the same period in 2022. Indicators from the Housing Observatory suggest a rise of 2.6% in the first quarter of 2023 alone.

The Housing Observatory highlights that this increase is "significantly higher than the inflation rate." For the time being, the current rents are not affected by this steep surge, as confirmed by Julien Licheron, a researcher at the Luxembourg Institute of Socio-Economic Research (LISER).