Luxembourg Banks Join Forces to Support Residential Construction

On Wednesday 22 May 2024, the Luxembourg Bankers' Association (ABBL) reported that four banks are uniting their efforts to support residential construction in the Grand Duchy.

Amid the ongoing housing crisis, the Luxembourg banking sector, under the leadership of the Ministry of Finance, is coming together to offer aid mechanisms to support residential construction and increase the supply of completed housing, noted the ABBL.

The association reflected on the impact of the increase in interest rates on the real estate and construction sectors, in addition to an existing context of high real estate prices and rising costs of energy and raw materials. The ABBL said the construction market has come to a "virtual standstill", worsening the housing crisis and raising fears of bankruptcies in the construction sector.

Speaking at a press conference on Wednesday, Gilles Roth, Luxembourg's Minister of Finance, stated: "As soon as this government took office, the revival of the construction sector and the creation of housing have been priorities. We therefore presented at the end of January a first package of measures which offer support both to people looking for housing and to businesses and investors. These measures passed the Chamber [of Deputies] last week. Other measures will follow". The minister added: "At the same time, I have always affirmed that all stakeholders must take responsibility. This is why I am delighted today that banks are ready to get more involved and are presenting innovative solutions. I am certain that our joint efforts will be effective."

"The initiative announced today is of unprecedented financial scale. It confirms the key role played by banks as responsible actors. Just like during the COVID crisis or the rise in energy prices, banks want to be part of the solution," emphasised ABBL CEO Jerry Grbic.

In order to prevent a lasting and prolonged decline in the construction of new housing and any resulting negative knock-on effects, four banks active in the area of financing residential construction will offer temporary aid.

As such, a new legal entity in the form of a special purpose vehicle (SPV) will be created to purchase properties that developers have been unable to market. The ABBL added that this aims to ensure the continuation of current projects, an increase in the supply of completed housing and to guarantee continued employment in the sector. The initial shareholders of this SPV are Spuerkeess, Banque Internationale à Luxembourg (BIL), Banque Raiffeisen and the state-owned investment bank Société Nationale de Crédit et d'Investissement (SNCI). The ABBL assured that a "competitive" project selection process would be put in place to ensure that "appropriate" sale prices. Eligible projects will be financed through capital provided by the participating banks to the SPV. This capital amounts to €250 million, which will allow about 800 to 1300 housing units to be placed on the market. The ABBL added that other banks will be invited to join this initiative.

The association noted that banks active in the field of residential real estate development will be free to make available additional financing dedicated to the construction of housing, the granting of which will be carried out according to criteria adapted to the current context. Some have already made such arrangements, according to the ABBL.

The ABBL CEO also recalled the proposals made to political parties during the legislative elections by the banking sector to revitalise the housing sector, as well as discussions with the financial watchdog, the Commission de Surveillance du Secteur Financier (CSSF), since 2020 to relax the conditions for granting bridging loans and currently continuing for mortgage loans in general.

The ABBL concluded that the CEOs of the SPV's four founding banks highlighted the "constructive" nature of the exchanges between the authorities and the banks. They also noted the "very short" period of time in which mechanisms aimed at preserving the economic and social foundations of Luxembourg could be put in place.