Competition Authority Issues Recommendations for Luxembourg Real Estate Sector

The Luxembourg Competition Authority recently issued its recommendations for the residential real estate sector in the Grand Duchy.

In 2022, the Competition Authority launched a sector inquiry into the residential real estate sector in Luxembourg. The survey focused on analysing the profession of real estate developers, at the heart of the housing creation value chain and its interconnections with other players in the chain.

After sending requests for information, conducting interviews and analysing the legislation and various studies in this regard, the Competition Authority has published the following recommendations.

Firstly, promoters are encouraged to remain attentive to compliance with the competition rules applicable to cooperation. Secondly, the Competition Authority called for better supervision of “new neighbourhood PAP” development phase projects through legal deadlines and administrative simplifications, which would potentially speed up the adoption of special development plans (PAPs) while reducing the stock of land held by promoters. In a context of rising land prices and low land taxation, the authority has not analysed the practices, alleged or actual, of land banking in the light of competition law, even if it is established that speculative behaviour in terms of land ownership contributes to soaring prices by restricting the supply of housing. With regard to call for tenders or auction procedures, the authority recommended that all stakeholders pay particular attention to possible bid rigging when selling real estate.

Furthermore, the Competition Authority concluded that the legal monopoly of banks with regard to the issuance of completion guarantees does not conform with the constitution and hinders the activity of insurance companies; the authority recommended abolishing this. The authority added that it did not share the criticisms addressed to the public authorities concerning the insufficient development of the land it owns.

The Competition Authority also noted that it is not excluded that the lack of labour results from a concerted effort between employers to keep wages low, to make hiring less attractive, which would likely reduce the possibilities of construction and therefore the number of new housing units built (negative volume effect) while increasing their selling price (positive price effect).

The authority proposed to revalue and regulate the profession of real estate agents, following the example of Luxembourg’s real estate chamber, in order to curb “bidding war” behaviour. The authority also recommended the formal repeal of the amended Grand-Ducal regulation of 20 January 1972 setting the scale of maximum commissions in order to clarify the current state of law.

Finally, the authority encouraged other methods of remunerating the agency service, such as the amount expressed in euros or an hourly rate, which would be more transparent and better assess the commission amounts.

The sector inquiry report for the residential real estate sector is available on the website of the Competition Authority: https://concurrence.public.lu/fr.html.