The Luxembourg Bankers' Association (ABBL) has reported that the Prolog SA housing support vehicle is now operational.
In response to the housing crisis, five Luxembourg banks have created a support mechanism for the residential property sector with a view to increasing the supply of completed homes. Announced in May 2024, this mechanism - a special purpose vehicle (SPV) in the form of a limited company called Prolog SA - is now operational. This approach is aimed at complementing government measures to boost housing, noted the ABBL.
"Since the beginning of this year, our members active in the residential housing finance market have seen a certain revival of interest in mortgage loans," explained Jerry Grbic, CEO of the ABBL. "However, this interest is concentrated on existing homes and not on VEFA (future state of completion) projects, and the recovery in the market is still too weak to meet the national housing challenge".
According to the ABBL, what is at stake is first and foremost access to housing, but also the country's ability to attract the talent it needs for its economy, as well as the future of jobs in a sector on which thousands of households depend: the construction industry.
The idea for the SPV Prolog SA was launched at the national housing meeting held in Senningen on 22 February 2024. It was created by the four founding banks, Spuerkeess (BCEE), Banque Internationale à Luxembourg (BIL), Banque Raiffeisen and Société Nationale de Crédit et d'Investissement (SNCI), now joined by Banque de Luxembourg. Its aim is to unblock the situation of properties where construction has started but which cannot be put on the market due to a lack of sufficient pre-sales.
"The promise to purchase that Prolog SA provides provides predictability: for buyers who have already invested in the project; for developers who wish to complete their construction; for the tradesmen who have been appointed; and finally, for potential buyers. Everyone will know that the project is going to be completed," emphasised Jerry Grbic.
7-phase process
Phase 1: The developer obtains the necessary permits and markets the units in its residential development.
Phase 2: Some of the units are sold on a VEFA basis, but because the number of units sold is insufficient, the developer is unable to obtain the necessary financing from its bank. Construction cannot begin.
Phase 3: The developer can submit its project to Prolog SA via one of the participating banks, so that Prolog SA can commit to buying (via an option) the unsold properties at a discount (to be defined on a case-by-case basis).
Phase 4: Prolog SA's Investment Committee analyses the project. The conditions to be met include the following: the project presented must be viable and meet market needs (e.g. luxury flats excluded); a pre-sales threshold of 50% of the programme has already been reached.
Phase 5: Through Prolog SA's commitment, the developer can obtain the needed financing from the bank to complete the project.
Phase 6: Construction can begin. At the same time, the developer continues to sell unsold units freely on the market.
Phase 7: If any units remain unsold at the time of completion, the developer asks Prolog SA to acquire them with a view to their subsequent resale by the SPV.
The five banks that are shareholders in Prolog SA have pledged a total of €250 million, which (if the mechanism is used to the full) will enable around 800 to 1,300 homes to be put on the market. Initiatives are underway within the institutions concerned to train their sales staff in this new mechanism.
The ABBL said it would be joining forces with the Luxembourg Chamber of Commerce, the Chamber of Skilled Trades and Crafts and the Real Estate Chamber to organise an information session for residential property professionals on 5 September 2024.
The ABBL also recalled that the vehicle is limited in time but remains open to other interested banks.
"We are convinced that the combined effect of the stabilisation and now fall in interest rates, and the concerted efforts of all stakeholders, whether in the public sector or the financial sector, will restore confidence in the housing market and contribute to its recovery," concluded Jerry Grbic.
