Luxembourg's housing market surging
Last Updated: May 09, 2013
On a quarterly basis, house sales prices rose by 2.4% (2.02% inflation-adjusted) during the fourth quarter of 2013.
On the other hand, figures from Statec Luxembourg showed lower increases. In 2013, the acquisition prices for apartments rose by 2.26% (0.94% inflation-adjusted) from a year earlier, to an average of €4,625 per square meter (sq. m.).
By property type:
- The average acquisition price for existing apartments increased by 2.6% y-o-y to €4,230 per sq. m. in 2013
- The average acquisition price for new apartments rose by 7.4% to €5,408 per sq. m. in 2013 from a year earlier
By region, the Center has the most expensive housing, with an average apartment price of €435,598 in 2013, followed by the West (€392,777), and the East (€337,736).
Residential construction activity is also rising. The total number of permits for one dwelling residential buildings increased by 7.4% y-o-y in 2013, to 1,357 buildings, in sharp contrast with the annual decline of 9.3% in 2012, according to Statec Luxembourg.
However, it is not all good news. Property transactions dropped slightly by 2% to 3,869 units in 2013 from a year earlier, according to Statec Luxembourg.
The housing market is projected to remain robust in 2014. In 2013, the economy grew by 1.96%. The country’s real GDP growth rate is expected to be 2.1% this year and at 1.9% in 2015, according to the IMF.
Luxembourg yields range from 3.40% to 3.86%
It will come as no surprise that residential property in Luxembourg is quite expensive. This is an upscale city, and one pays upscale prices for property. One can expect to pay as much as €6,600 per square metre (sq. m.) for an apartment in the best areas of Luxembourg: Belair, City Centre, Kirchberg, and Limpertsberg.
Yields are low. This is not a city where you can expect to make good money by owning and renting out property. This is nice for the many visiting expatriates, who can rent properties at quite reasonable rents - €1,400 per month for a 75 sq. m, apartment, €3,300 for a 175 sq. m. apartment.
Rental yields, at between 3.86% for smaller sized apartments, and 3.40% for lager apartments are rather low - as one would expect in a high-end city.
High taxes despite tax-haven reputation
Rental Income: Rental income is taxed at progressive income tax rates ranging from 8% for net annual income exceeding €11,265, to 40% on income above €100,000.
Capital Gains: If the property is held for more than two years, capital gains tax rates are reduced to a maximum of 19.475%.
Inheritance: Inheritance is subject to death duties if the property is obtained from a nonresident. Tax rates vary depending on the relationship between the deceased and the heir, from 2% to 15%.
Inheritance is subject to succession duties if the property is obtained from a resident.
Residents: Residents of Luxembourg are taxed on their worldwide income at progressive rates, from 8% to 40%.
Buying costs are moderate in Luxembourg
Total roundtrip transaction cost, i.e., the cost of buying and selling, is between 12.21% and 16.41%, inclusive of registration fees (6% to10.2%) and estate agent's commission (3% plus 17% VAT).
Luxembourg has strong tenant protection laws
Luxemourg's rental market is strongly pro-tenant.
Rent: Rent control limits the amount of returns a landlord can receive. Rent can only be increased every three years.
Tenant Security: If evicted, the tenant is usually awarded generous compensation and more than sufficient time to look for an alternative dwelling.
Luxembourg: modest economic growth; rising unemploymentLuxembourg has one of the highest, if not the highest, GDP per capita in the world, at US$110,424 in 2013, according to the International Monetary Fund (IMF). But from average GDP growth of 5.2% from 1999 to 2007, the Grand Duchy entered recession in the last quarter of 2008, with GDP falling by 3.6% q-o-q, mainly due to the global financial and economic crisis. The economic downturn continued in 2009, with GDP contracting by 5.6%.
In 2010, Luxembourg emerged from recession with economic growth of 3.1%, and a further 1.9% economic growth in 2011. However in 2012, the economy contracted by 0.18%, amidst the eurozone debt crisis. In 2013, the economy grew by 1.96%.
Luxembourg’s economy is expected to expand by 2.1% this year and by another 1.9% in 2015, according to the IMF.
Core inflation slowed to 1.5% in March. In 2013, consumer prices rose by 1.7%, after 2.9% in 2012, and 3.7% in 2011. Inflation is expected to be 1% this year, according to Statec Luxembourg.
Unemployment stood at 7.1% in March 2014, up from 6.8% in 2013, 6.1% in 2012, and 5.6% in 2011.
The Grand Duchy of Luxembourg is known as the “Green Heart of Europe”. Covered with large woods, it has a beautiful landscape. About the size of Paris Metropolitan Area, it is completely surrounded by Belgium, Germany and France.
Notwithstanding its small size, Luxembourg has played a key role in the formation of numerous organizations - the European Union, NATO, OECD, the United Nations, Benelux, and the Western European Union. The Grand Duchy joined the euro currency area in 1999. In January 2014, there were about 550,000 inhabitants in the country, according to Statec Luxembourg..
Luxembourg is the seat of EUROSTAT, European Court of Justice, European Court of Auditors, the European Investment Bank and other vital EU organs.