Existing Home Prices Drop by 13.5% in Q2 2023

Luxembourg's Housing Observatory and the national statistics institute STATEC have jointly published a report with statistics related to the residential real estate market.

According to the fourteenth edition of the "Logement en chiffres" (Housing in Figures) publication, the price of existing properties fell in the second quarter (Q2) of 2023, whilst that of off-plan property slightly increased.

In Q2 2023, the sharp drop in activity (number of transactions) observed in the previous quarter continued, affecting all segments. This reduction in activity was most significant in the market for the sale of apartments under construction, both compared to Q2 2022 (-63.2%) and to pre-COVID-19 levels.

The hedonic house price index provided by STATEC (including both existing housing and housing under construction) fell by 6.4% between Q2 2022 and Q2 2023.

Price developments in the different segments were as follows: the price of existing houses fell by 13.5% and that of existing apartments fell by 4.5%, whilst that of apartments under construction (off-plan) increased by 2.2%. These price changes relate to notarial deeds registered in Q2 2023, i.e. to sales agreements signed in mostly before the end of April 2023.

Commenting on the report, Luxembourg's Ministry of Housing emphasised that the drop in sales prices should be interpreted in parallel with the drop in activity on the real estate and land markets: the ministry hypothesised that sellers who agree to a drop in price compared to their initial expectations often need to sell (for example in the case of bridge credit) and the number of transactions remains limited because some potential sellers prefer to wait rather than lower their price (as appeared to be the case in the apartments under construction segment).

Moreover, the number of transactions relating to building land located in residential areas was approximately 15% lower than the average recorded between 2010 and 2021, and 22% lower than that of 2021.

These statistics also confirmed the slowdown observed in the growth of building land prices since 2020: +10.4% between 2020 and 2021, then +5.9% between 2021 and 2022. According to the Ministry of Housing, the deceleration in the sale prices of building land seems to precede the slowdown in the growth of housing prices, which was more evident in 2023.

Regarding rents, after several quarters of sharp increases, the rental market appeared to stabilise in Q2 2023: +0.2% compared to in the previous quarter. The increase in advertised rents, however, remained significant over twelve months: +6.7% between Q2 2022 and Q2 2023. This was significantly higher than that of consumer prices measured by the national consumer price index (+3.4%). over the same period.

In addition to the "Logement en chiffres" publication (which can be downloaded, in French, here), the Housing Observatory recently published two additional documents dedicated to housing prices and rents: an analysis report devoted to residential property prices in Luxembourg between 1975 and 2022 and an analysis report focusing on rentals of furnished rooms and rents announced in real estate advertisements.

The former revealed that the period of sharp price increases observed between 2010 and 2021 was not an isolated episode. Similar, fairly long-lasting increases (followed by short episodes of falling prices) have occurred three times since 1975, contributing to the current level of housing prices, noted Luxembourg's Ministry of Housing.

Among the main findings in the latter was that the number of furnished room rental advertisements represented approximately 11.6% of the total rental supply in 2022, whereas this segment represented less than 3% between 2010 and 2012. It also showed that rents for furnished rooms have increased more quickly than traditional indicators of advertised rents: +4.8% on average for advertised rents for furnished rooms over the period 2010-2022, compared to 4.0% for traditional apartments. The ministry thus deemed necessary the particular monitoring of developments in the furnished room rental segment; the Housing Observatory will henceforth pay particular attention to this segment in its upcoming statistical publications. It was also deemed important to better define, and potentially better supervise, this segment from a regulatory point of view.