E&V Market Statement: Lookback 2021 and outlook 2022 on the residential real estate market in Luxembourg

The corona pandemic, as for most sectors, had a major influence on the Luxembourgish residential real estate market. We noticed a change in the behavior on the buyer side, as well as on the seller side due to a lack of available properties for sale.

The pandemic plus further external factors like the inflation discussion, rising prices for renovations and construction strongly influenced the market. Many sales decisions were postponed because of these considerable uncertainties. Exactly this is Immotop.lu reflecting with 10% less listings in the first quarter of 2021. The market's demand for residential properties stayed on a very high level. This mix of less products on the market and a very high demand pushed the average prices not only in the top locations, but in the whole country to new peaks. 

For years the prices in Luxembourg are rising on a very high level, like in the good locations in the neighboring markets like in Germany, Belgium or France. The prices are a result of many factors: historically low interest rates, money that is cheaper than ever before, growing inflation and people looking for safe investments of their funds in the mid and long term. Team Leader of Engel & Völkers Luxembourg Raymond Klein sees a: “good economic development - especially in the service orientated businesses in which Luxembourg is very strong, for example demographic growth and high creation of strongly qualified jobs. For 2022 we see an ongoing inflation and in comparison with penalty interest on big cash assets and less promising investment opportunities the real estate market will automatically get more and more attractive as an investment alternative as an apparent safe harbor”. 

The corona pandemic with the lock downs and all other consequences pushed the trend of buyers for more outdoor space. Because many can't pay for this extra space in the city, Engel & Völkers Luxembourg noticed a stronger demand for houses and apartments in the surrounding areas of Luxembourg city. This trend will also remain in 2022 as many people are able to work from home and therefore put less importance on living close to their workplace.

The rental market suffered strongly in 2020 and 2021 due to the effect of the home office and that less new potential tenants were obliged to move to Luxembourg. We are convinced that 2022 will bring more normality to the market as a large percentage of the population is vaccinated and moving from abroad to luxembourg gets easier.

Last but not least the new development market (VEFA) in Luxembourg is struggling since 2020. Despite strong growth rates of the Luxembourgish population and more need for living space, the administrative regulations for new developments got more and more complicated in the last years.  The cost for construction materials exploded in the past year (Blocage of Suez Canal, disruption of supply chains, US import limitations from Canada) and raised the risk for real estate developers enormously. With prices for land at an all time high, developers can not allow any negotiations on sales prices. In consequence, the prices of new constructions growed above average and the margins of the developers dropped. 

Shortage and higher prices for construction materials are now often delaying the projects and bringing up more risk for the buyer. Consequently, many potential buyers of new developments are waiting at the sideline or deciding for a resale property as an alternative. Last but not least the government lowered the percentage of amortization from 6 to 5% yearly and from 6 to 5 years which makes the investment into a new development less attractive. A few years ago, we often saw 40% of residential buildings being sold to investors. This percentage has dropped to about 36%. One of the reasons is certainly that the CSSF has made it more difficult for investors to get financing. Since 2021, banks in Luxembourg are supposed to ask the buyer for at least 20% personal contribution on the purchase price incl. fees. 

“When looking at the statistics from the Statec - Observatoire de l’habitat, our analysis is confirmed” says Matthias May, Managing Director of  Engel & Völkers. “In 2021, we see a decrease of 40% on the number of sales of VEFA apartments compared to 2020.” 

Nevertheless the investment in a new development is still very attractive with its high growth rates of general property prices in Luxembourg. We see that the current development brings the prices of new developments and resale properties a little bit closer together as the prices of resale properties are growing rapidly. The demand is below the level of 2019 because of the mentioned reasons but still very high. Good products in the right location are sold within days and the trend towards sustainable products will give the new development market another focus and further push in the future. 

The locality of Bertrange for the first time climbs on the top of the highest average prices for new build properties with an average price of 12.500€. Luxembourg city with an average price of 12.000 € follows. This development shows the attractiveness of Luxembourg City’s surrounding areas. A reason is that more and more investors focus on buying outside of Luxembourg-City with the hope to achieve better returns.  

The highest prices in this segment were paid in the city center with a square meter price above 16.000 euros on average. 

Philipp Niemann Managing Director of Engel & Völkers Luxembourg: “All in all the luxembourgish real estate market for new build or existing properties is a very healthy one. High demand meets a small amount of products which will keep on raising the prices also in 2022. The rental market struggled during the pandemic but we are expecting a much higher demand from April on, especially from the UK and other regions. The new development market will slowly recover and will offer good investment opportunities. From seller and buyer perspective a good price valuation is more important than ever before, because the price differences within micro locations and different kinds of property types differ enormously. Engel & Völkers as the most international agency and with a huge Luxembourg experienced team is the right contact for a detailed analysis.