On Monday 3 January 2022, Nexvia, a residential real estate business established in Luxembourg with a number of tools launched since 2016, has published a perspective on the Luxembourg residential real estate market for 2022, focussing on off-plan apartments.
With volumes displaying an annual drop of 12% in volume, sales of off-plan apartments VEFA (Vente en État Futur d'Achèvement) seems to be losing momentum. To examine if this is a cyclical phenomenon or a trend change on the real estate market, see below:
Declining volumes
Only 467 transactions of off-plan apartments were registered during 2021 Q3 according to the Observatoire de l’Habitat. We need to go back to 2013 to find
figures this low.
Pierre Clement, CEO of Nexvia, commented "our discussions with buyers, developers and banks indicate that there has been a reduced interest in off plan properties, and it did not come back, for now. One should also consider that when a deed is signed at the notary, it is concluding a transaction that has been decided 6 to 12 months ago.” Nexvia stated that it is likely that the next quarterly publication will only confirm the current trend. It is not a lack of offer, as STATEC has indicated a yearly growth of 25.3% of the number of apartments that have received building permits. It is likely that the market shows a lengthening of the sale process.
The off-plan property market dynamic
With an annual growth of 9.2%, the off-plan transactions prices display good health. Nevertheless, it is way below the 15.5% increase for existing properties. Raw materials shortage and general construction price increases have contributed to the off-plan properties price growth. However, the Note n°28 from the Observatoire de l’Habitat, published in November, explains that land prices are the price increase key driver. On this matter, developers are not all equals.
Pierre Clement elaborated “there is little negotiation on the off-plan market, price are fixed at the beginning of the commercialisation. If there would be price reviews, developers would face different situations. Some are turning into profit land they have owned for a long time, but others have had to bargain recently and dearly for land access. Those might be caught between a rock and a hard place."
Despite all this, one should not read here a drop in interest for home ownership in Luxembourg. According to Romain Aubrée, Head of Sales at Nexvia, "it is still hard and lengthy for our customers to find a property. However off plan projects usually require that you wait a minimum of 24 months before delivery. Factor on top the high listing prices, and the possible indexation of construction prices, you get conditions that can scare some buyers away."
The context in 2021
2021 has seen key changes on fiscal and legal matters. Mortgage attribution conditions from the CSSF have seriously impacted investors, who now must pay down 20% of the property price plus acquisition costs. The fiscal amortisation for off-plan properties, helping investors in Luxembourg, has been reduced.
"In the past, it was common to see projects where 60% or more of the dwellings were bought by investors. The entry ticket higher price and a reduced yield can explain a lesser appetite from investors”, concluded Pierre Clement. “On a more positive note, this could reinforce owner-occupiers on the off-plan market.”
