Despite a sluggish real estate market, Luxembourg's financial institutions are ramping up loan approvals, buoyed by falling home prices and government incentives aimed at encouraging property purchases and supporting new construction projects.
According tothe Luxembourg Bankers' Association, the Grand Duchy's financial institutions are granting more loans again, primarily due to a price drop for existing homes of around 20% over the last two years. This drop is said to offset higher interest rates to some extent. Additional interest rate cuts are further expected due to the poor economic situation across the EU.
Thanks to generous government measures, it could also be worth applying for real estate loans for new-builds, says ABBL general director Jerry Grbic: "The state guarantees interest subsidies up to 3.5%, if you don't have enough of your own savings. The 'Bëllegen Akt' [threshold for notarial deeds related to property transactions] sits at €40,000 per person, or €80,000 for a household."
In 2025, however, the 'Bëllegen Akt' will drop down to €30,000 per person again, although registration fees will be halved until the middle of next year. This was announced during last week's budget presentation in the Chamber. "These are all measures with an immediate impact on our wallets", Grbic says. "And it means a number of people today may be much closer to purchasing their own property than they think."
Customers will soon feel the impact of September's drop in interest rates on their mortgages, he further noted: "Once again: the banks are keen to issue mortgages and there is also competition on the market to do so, meaning they will be issued relatively quickly."
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'Prolog' support mechanism yet to receive building project submissions
While government measures are seeking to drive the sale of new-builds and keep the construction sector afloat, a number of Luxembourg banks launched a special entity known as 'Prolog' to invest in building projects that might otherwise not get off the ground. The SNCI, Spuerkeess, BIL, Banque de Luxembourg, and Raiffeisen announced the plan in early July, earmarking €250 million to invest in construction.
However, not enough residences have been sold to receive the legally prescribed guarantee of completion, as 80% of apartments need to be sold in order to meet this threshold.
Grbic says to date, not a single project has been submitted to the 'Prolog' entity. The first information meeting was held in early September. However, procedures seem to be slowing down the process: in order for a project to be submitted to Prolog, it must be subjected to analysis by one of the five participating banks. In addition, the regulatory framework required by the CSSF banking watchdog also "costs time", according to Grbic. It could therefore take another couple of months until the first project is submitted, so it is feasible that Prolog 2025 could be extended beyond its original deadline of the end of the year.
