Dutch house prices recovering - at last!
Last Updated: October 15, 2015
The average house price in the Netherlands rose by 4.23% (3.38% inflation-adjusted) during the year to Q3 2015 to €224,000 (US$254,753), according to the Dutch Association of Real Estate Agents (NVM). House prices were unchanged in Q3 2015 from the previous quarter.
All property types showed house price growth during the year to end-Q3 2015, according to the NVM.
- Detached houses recorded the biggest price increase of 5.2%, to an average of €352,000
- Apartment prices rose by 4.4%, to an average of €175,000
- Terraced house prices also rose by 4.1%, to an average of €197,000
- Semi-detached house prices also increased 3.8%, to an average of €264,000
- Corner houses saw a price increase of 3.3%, to an average of €216,000
After a housing boom lasting almost 15 years, the Dutch housing market started to weaken in 2008, mainly due to the global financial meltdown. Based on NVM’s figures:
- In 2008, house prices fell by 5.33% (-7.55% in real terms)
- In 2009, house prices dropped by 1.5% (-2.4% in real terms)
- In 2010, house prices rose by a meager 0.96% by dropped 0.65% in real terms
- In 2011, house prices dropped by 3.63% (-6.06% in real terms)
- In 2012, house prices fell by 6.7% (-9.54% in real terms)
- In 2013, house prices increased by 0.24%, but dropped 1.25% in real terms
- In 2014, the housing market started to recover, with house prices rising by 3.65% (2.7% in real terms)
Demand strengthened strongly in 2014. The number of property transactions rose 39.4% to 153,511 units in 2014, the highest level since 2008, according to Statistics Netherlands (CBS). Dwellings sales rose in all major cities and municipalities.
“The recovery in the housing market is no longer limited to urban areas, and home sales are also improving outside the cities,” according to NVM Chairman Ger Hukker.
During the first eight months of 2015, property transactions rose by 23% to 109,534 units compared to the same period last year.
The Dutch housing market is expected to continue to strengthen in the coming months, thanks to low interest rates, increased consumer confidence, and improving economic conditions. Rabobank expects average house prices to increased 1.5% - 3.5% in 2015, and property sales are expected to reach between 160,000 units and 180,000 units.
“As more homes are now being sold in the more expensive segment, the average price paid is also increasing accordingly,” said Hukker.
The Netherland’s economy expanded by 0.9% in 2014, after declines of 0.7% in 2013 and 1.6% in 2012, according to the International Monetary Fund (IMF). During the second quarter of 2015, the economy grew by an annualized 1.8%, down from the y-o-y growth of 2.5% in Q1 2015, according to the CBS. Economic growth is expected at 2% this year.
Rental yields are attractive in The Hague
Gross rental yields from apartments in the Netherlands continue to be attractive. The returns on investment are not princely - but they beat those in many other countries, especially given the excellent security of the Netherlands, its stability, rule of law, generally vibrant economy, and good long-term prospects.
In Amsterdam, yields on apartments range from 4.7% to 5.8%. As usual, smaller apartments return higher yields than larger.
In The Hague, yields in range from 6.1% to 7.1%.
The Hague is a less expensive city to buy in, and really merits consideration by investors. First, it is the seat of government, so most foreign embassies in the Netherlands and 150 international organisations are located in The Hague, including the International Court of Justice and the International Criminal Court. Several large international businesses have their headquarters in The Hague, including Shell, the world´s second largest company in terms of revenue. This means that there is an ideal group of expatriate tenants to whom owners can rent their apartments, as 26% of the jobs in The Hague are either offered by the Dutch government or by international institutions. In addition, for those interested in the short-term rental market, tourism is important, with 1.2 million tourists a year.
English is spoken virtually everywhere in the Netherlands, and non-Dutch speaking property investors from abroad will experience no difficulty navigating the environment.
Round trip transaction costs are mid-range on residential property in the Netherlands, see our Netherlands transaction costs analysis and our Netherlands transaction costs compared to other locations.
Taxes are generally high in the Netherlands
Rental Income: The income tax on renting residential property is quite high, though the tax is not really an income tax. In reality it is a flat tax, with 30% levied on the assumed rental yield, the basis of assumption being that a rental yield of 4% is made on the assets. In effect, an annual tax of 1.2% is imposed on the value of the assets. If the rental property yields more than 4%, the proportionate tax rate is lower.
Capital Gains: For the sale of real estate that was used as part of a rental business enterprise, capital gains are taxed as part of income in Box 3 i.e. 30%.
Inheritance: Wealth acquired by inheritance from an individual who has properties in the Netherlands is subject to inheritance tax. Different rates apply, depending on the relationship between the heir and the testator where there are three categories.
Residents: Residents are taxed on their worldwide income.
Total transaction costs are moderate in the Netherlands
Total transaction costs are between 6.63% and 13.855% of the total dwelling price for existing houses, which is moderate by international standards. The bulk of these costs are paid by the buyer, including the transfer tax, legal fees and registration fees. Real estate agent’s commission at 2% to 4% (plus 21% VAT) is shared between buyer and seller.
If the property is newly constructed (or less than two years old) the transfer tax is replaced with the 21% VAT.
Almost impossible to evict tenants in the Netherlands
Dutch rental market practices are pro-tenant.
Rent: Landlords can set the rent freely and adjust the rent, for properties above the ‘liberalization rent limit’ of €604.72 per month. A deposit of two to three months is customary.
Tenant Security: The most dangerous aspect for a landlord in the Netherlands is that once a property has been rented, tenants are almost impossible to evict. The basic Dutch rental contract is one of unlimited duration. Landlords can only give notice in strictly defined cases, and it is extremely difficult for owners to evict tenants once they are established.
Economy recoveringThe euro crisis affected the Netherlands, sending its economy into recession in 2011. The recession continued in 2012 and 2013, with economic contractions of 1.6% and 0.7%, respectively.
In 2014, the Dutch economy started to show some improvement, with a GDP growth of 0.9%. During the second quarter of 2015, the economy grew by an annualized 1.8%, according to the CBS. Economic growth is expected at 2% this year.
However, the national debt remains high. During the recession, the government boosted the economy through stimulus programs and bank bailouts, resulting in a budget deficit of 5.6% of GDP in 2009, 5.1% of GDP in 2010 and 4.3% in 2011. As a result, the country’s debt rose to 65.2% of GDP in 2011. In 2012, the national debt rose further to about 71% of GDP, far higher than the permissible upper limit of 60% stipulated by the EU Stability Pact. In 2014, the gross public debt remains high at 68.8% of GDP, from 68.6% in 2013. On the other hand, the public budget deficit stood at 2.3% of GDP in 2014, unchanged from a year earlier, but down from 4% in 2012. The deficit is projected to fall to 1.7% this year and to 1.2% in 2016, while the gross public debt is expected to increase slightly to 69.9% of GDP this year.
Inflation continues to slow. In September 2015, the nationwide inflation rate stood at 0.6%, down from 0.8% in August 2015, and 1% in both June and July 2015, according to CBS. In 2014, the overall inflation rate fell sharply to 0.3%, from an annual average of 2.6% from 2011 to 2013, according to the IMF.
In August 2015, the country’s unemployment rate was 6.8%, unchanged from the previous month, according to CBS. In 2014, the nationwide unemployment rate stood at 7.4%, up from 7.3% in 2013 and far higher than the average jobless rate of 4.7% in 2006 to 2012, according to the IMF. The total number of unemployed persons fell by 2.1% to 604,000 in August 2015 from three months ago.