What impact has the health crisis had on the Luxembourg market?

Is the Covid-19 health crisis having an impact on the Luxembourg market? Between accelerating price rises and strict new mortgage regulations, this health crisis is likely to have a lasting impact on the sector. We explain everything in this article.

Is the Covid-19 health crisis having an impact on the Luxembourg market?

While the Covid-19 health crisis has had unprecedented repercussions on many sectors of our society, the Luxembourg property sector has not been hit hard since March 2020 and the first measures taken by the authorities to slow the spread of the virus.

Just look at the figures: compared with the fourth quarter of 2019, the fourth quarter of 2020 saw an annual increase 16.7 1TP3Q increase in house prices ! Double-digit growth in property prices in Luxembourg for the second year running*.

*Source: Statec - Housing Observatory

The reasons for this sustained rise can be attributed to a number of factors, including the profound mismatch between supply and demand is often the answer put forward to explain this phenomenon.

Is the health crisis accelerating the surge in prices on the Luxembourg market?

Has Covid played a role in this price surge? Most certainly. Property has always been seen as a safe haven in an uncertain socio-economic climate. Faced with the crisis of a year and a half ago, few owners of houses, flats and land were inclined to put their property up for sale. A phenomenon that has reduces an already very low supply in Luxembourg.

On the other hand, demand has continued to grow, further accentuating the gap between buyers and sellers.

Observers agree that this growth in property prices in Luxembourg - but also in other major European cities - will continue, but to a lesser extent.

More cash flowing into property?

According to Thomas Valici, an economist at the Idea Foundation, interviewed by Luxemburger Wort on this subject, the coronavirus crisis has had another impact on Luxembourg households. " Some of the forced savings made by the most affluent households during the COVID-19 crisis could well precipitate a further influx of liquidity into property. "he explained to the Luxembourg daily.

A phenomenon that could obviously widen the gap between supply and demand in the future.

Home ownership increasingly difficult in Luxembourg

More than just a place to live, property is increasingly seen as an attractive source of investment. And there's no arguing with this point of view when you see the value that real estate in Luxembourg is taking on, especially when you're operating in an environment of low interest rates, as is currently the case.

Nonetheless, the result of these soaring prices is that access to property is becoming increasingly difficult. And the impact of the coronavirus crisis on banking institutions could exacerbate this problem. Embroiled in the post-Covid economic crisis, banks may be demanding more guarantees from prospective buyers. With prices already beyond comprehension and even stricter conditions for obtaining credit, it could become even more difficult for buyers to become homeowners.

Since 1 January^er New conditions for granting home loans are already in force at banks from 1 January 2021. The aim of these new standards is to guarantee the stability of the Luxembourg banking system and avoid over-indebtedness among households, which could be blamed on the health crisis.

• 100 % loan for first-time buyers

People wishing to buy their first property are now granted a loan that cannot exceed the actual cost of the property. In the past, some banks included registration fees, notary fees or an allowance for works in the mortgage.

• 80 % loan for homeowners wishing to extend their property portfolio

People who already own a property and want to extend their estate with a new asset will only be able to obtain 80 % of the loan, i.e. they will have to contribute 20 % of the sum to be granted the loan.

• 90 % for homeowners moving house

Finally, Luxembourg homeowners wishing to move will be able to obtain a loan for 90 % of the sum. They will therefore have to pay 10 % of the amount from their own funds to acquire their new home.

In short, while the Covid crisis has accelerated the rise in property prices and may have made home ownership more difficult, its long-term impact is difficult to predict. In any case, industry professionals are adapting to minimise the impact of this crisis on the property market, which is a real pillar of the country's economic activity.