Your suspicions were right: home prices doubled since 2010
The cost of buying a home in Luxembourg more than doubled in the past decade - the second-fastest rate in the European Union - while renting costs, which are limited by law, rose more steadily at a pace in line with the rest of the 27-nation bloc, the EU statistics agency reported.
House prices in Luxembourg increased by 111% between 2010 and June of this year, a rate which trailed only Estonia's 133% rise, Luxembourg-based Eurostat said on Thursday. The cost of buying a home fell during the same time in Greece by 28%, Italy 13%, Cyprus 8% and Spain 3%, the statistics agency said.
Real estate prices climbed by an average 14.5% last year alone, Luxembourg’s statistics agency Statec and housing research body Observatoire de l’Habitat reported.
Sale prices for homes in and around the capital city hit an average of more than €1.34 million last year, the Housing Observatory reported in April. Prices were lower outside the country's economic and political centre. Average home sales prices were slightly over €783,000 in the canton of Esch-sur-Alzette and €625,000 in the country's northern municipalities, the report said.
Meanwhile, the cost of renting a house or apartment in Luxembourg only rose in line with the EU average of 16%, Eurostat said. Unlike home prices, landlords were limited throughout the decade in how much they could charge tenants by a law capping their return to 5% of the capital invested in a rental building.
House prices have been rising at a much faster pace than rents across the EU since 2015, Eurostat said, a period in which interest rates for mortgages and other types of borrowing was persistently cheap and demand exploded.
"The supply-demand imbalance, combined with low interest rates, is clearly driving up real estate prices," Michel Zimer, a vice president at state-owned savings bank Spuerkees, wrote in a recent blog post.
Luxembourg's population grew by 24% since 2010 as the country's economy flourished, with 80% of that growth coming from the arrival of foreigners who all joined the search for housing, Zimer wrote. Construction has not kept up with demand, with only about 3,800 new homes completed on average since 2015, Zimer said.
"Add to that a record-low interest rate environment that allows households to borrow higher amounts while keeping the same monthly repayment," Zimer wrote.
With demand strong, supply unable to keep pace and borrowing capacity on the rise due to falling interest rates, "you basically have the three perfect ingredients needed to drive a sharp rise in prices," Zimer said.
The average Luxembourg mortgage takes more than a third of a borrower's disposable income to repay their housing debt, financial watchdog CSSF said in August. A third of the country's households paid a mortgage, an equal amount owned their homes clear of debt and 25% were tenants, the government said in August.
Luxembourg’s property prices have become an increasingly sore point as some residents are forced to move over one of the three borders to be able to get a foot on the property ladder.
Although Luxembourg has enough land to build between 50,000 and 80,000 housing units, private owners hold 65% of the constructible land and 75% of the surface area that needs only a simple building permit. Of the buildable land that is owned by private individuals, 16,000 private owners hold close to three-quarters of the total.
The Luxembourg Times has a new mobile app, download here! Get the Luxembourg Times delivered to your inbox twice a day. Sign up for your free newsletters here.
