2022 assessment of real estate prices in Luxembourg: the rise is fading

The year 2022 ended in Luxembourg with prices up 9.6% on average compared to 2021. However, if we compare Q4 2022 with Q2021, the increase is “only” +5.6%. For the record, the average increase was still double-digit the previous 3 years. This deceleration is certainly a harbinger of the sector’s difficulties since the beginning of 2023 (bankruptcies of promoters and cry of alarm of the profession in agency)

Price deceleration in 2022 affects all housing types

  1. The average price of apartments under construction (VEFA) has held up the best but hides a divergence between the still sustained demand for own needs versus investment
  2. For existing house, prices which had soared during the pandemic, have been decelerating sharply since mid-2022 after peaking at the beginning of the year.
  3. The deceleration in the prices of existing apartments has been structural since the pandemic but accelerated in mid-2022.

Sharp deceleration in apartment prices and collapsing volumes

  1. In Q4 2022, real estate activity is down sharply with volumes collapsing especially on the VEFA segment (389 sales, -48.3% vs Q4 2021)
  2. The shortness of breath on the VEFA began two years ago but really plunged in mid-2022 under the effect of
    1. Rising interest rates
    2. and therefore the decline in the borrowing capacity of first-time buyers
    3. uncertainty about the final bill for apartments indexed to the construction price index (+28% since 2020).
    4. Rising interest rates have made standard financial investments more profitable for investors with cash
  3. For existing apartments, sharp decline over one year and compared to the historical average (880 sales in Q4 2022, or -17.8% in one year).

Volumes that also collapse on houses

  1. In Q4 2022, the number of sales of existing homes is well below the historical average (639 sales in Q4 2022, -25.4% vs Q4 2021)
  2. The financial volume of sales fell by the same amount (-25.8%), indicating a stabilization of prices
  3. For building land, there was also a sharp drop in the number of sales (429 sales in Q4 2022, -29% vs. Q4 2021).
  4. The financial volume of building land is however only -4.9% but Statec does not prefer to deduce a high valuation of land as the nature and potential can be heterogeneous

Average selling prices

  1. The canton of Luxembourg remains unsurprisingly the most sought after in the country with strong price disparities for the most remote cantons and especially the least connected to the center
  2. Prices also increased structurally faster in the Centre (+7% between 2009 and 2018) than in the periphery (+3% in the North)
  3. However, the increase in prices was more homogeneous over the period 2018-2021 (+10%)
  4. The price difference between existing and new is between +2% to +15% in favor of new for comparable objects
  5. For houses, the average price in the canton of Luxembourg is €1,591,000 (median at €1,460,000) while they are less than €1.2M in the East or Capellen-Mersch and well below the million euro mark in the canton of Esch and in the North.

Rents announced to rise sharply

  1. Rents increased on average by +3.4%/year over the period 2017-2022 for apartments (+20.3% cumulatively) versus a cumulative increase of +76.9% for the prices of existing apartments.
  2. The decline in rental yields has historically been more than offset by the prospect of capital gains and tax benefits.
  3. Rents announced for new apartment rental contracts increased significantly in Q4 2022 (+2.1% in one quarter and +8% in twelve months).
  4. This increase in rent prices is higher than the selling price of housing (+5.8% vs Q4 2021) and consumer prices (+6%)
  5. For houses, rent increases for new contracts were +4.8% in one quarter and +6.9% year-on-year.
  6. Statec recalls that only 13% of rentals concern houses in Luxembourg since 2010. Variations are therefore statistically more volatile
  7. However, if a catch-up effect is observed on new leases, existing leases increase less quickly than consumer prices (+2% vs. +6% inflation)

Infographics in brief and full report

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