Macroeconomic pressure on Luxembourg’s real estate sector has translated into a lower volume of property sales, which is hurting the businesses of those who sell real estate properties – real estate agents. They are now screaming bloody murder.
“The market is suffering,” said Jean-Paul Scheuren of the Luxembourg real estate chamber, speaking of the real estate market generally. “Everybody is like on hold, on hold, and also the demand is on hold.”
One element of the real estate sector is being hit particularly badly. “Real estate agents are suffering,” said Scheuren. “We are looking forward to a lot of people not earning a lot of money. You find people in Luxembourg that haven’t sold one house or apartment last year. Not one.” Scheuren has called on the government to offer employment subsidies to keep some of the employees in work.
There are about 1,200 real estate agencies employing 1,750 people in the county.
Significant slowdown
The Luxembourg real estate market has experienced a significant slowdown in 2022 due to Inflation and what has been described as a “brutal” rise in interest rates in recent months. The fall in sales volume has been estimated in the order of 80 to 90 percent, said Scheuren.
“What we see is so much insecurity,” he said. “We had the war. We had rising construction prices. We even had price hikes over the previous years. And suddenly, people were stopping and saying ‘okay, what’s going to happen now?’”
Rising interest rates have affected both demand and supply. This situation will continue this year if the government does not “give a push to the market”, said Scheuren, referring to several government measures that removed incentives for wealthy people to invest in a second apartment for rental income, ending tax advantages and limiting rental increases. “All these messages are now really at a bad time.” He said if these people don’t invest, “we will miss them on the rental market.”
Statistics show weakness
In commercial real estate, new buildings opening for tenants have dropped 58 percent and occupancy has dropped by 43 percent. However, the Covid effect is considered over and workers are coming back to the offices, which tends to reduce the vacancy rate. “Office space, the market seems to be more regular,” said Scheuren.
In the residential sector, reduced sales have been met with a reduction in home-building activity. Any agents who were betting on a continuation of the recent real estate speculation which led to 10-15 percent per year price increases have been disappointed.
Scheuren takes issue with some of the published information about house prices, saying that he sees that “statistical effects” are distorting the picture. “When more things are sold in Luxembourg City, then you see the price go up in the mean and things like that.”
Only rental outperforms
The last quarter of 2022 featured a lot fewer sales than previous years. He referred to a statistic from the Spuerkeess bank showing that sales in December had dropped by 45 percent. “It’s a lot of money, and it’s a lot of decreased activity.” Real estate agents are affected. “They see it directly. And they have been in this condition for six months now, and it will be very tough for the next six months.”
The only sign of strength has been reported to be in rental. Scheuren explained that Luxembourg suffers from insufficient rental apartments. “We had a lot of people who wanted to buy, but couldn’t get a mortgage loan, despite high wages, come onto the rental market.”
Certain local real estate agencies have been hit hard, with most down to about 40-50 percent of their usual business activity.
The sharing of commissions between agencies, between those who have a property to sell and those who have a buyer has become more frequent given the pressure to make whatever sales are possible.
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