2024-04-08 11:50:26
The consequences of the slowdown in Luxembourg’s real estate market have reached the country’s notaries and real estate agencies, with some companies having to lay off staff due to a drop in transactions, but the government’s housing measures are starting to reverse the tendency.
Without their approval, no real estate transaction is possible. When the Luxembourg real estate market was booming, the activities of the country’s notaries were just as flourishing. However, with sales and prices falling, some solicitors have been caught in the crossfire.
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“This particularly affects firms that work with real estate developers,” explains Martine Schaeffer, who runs her own notary office. She is unable to say how many people have been laid off in the sector. She herself has heard from six to eight people.
30% fewer transactions
None of Luxembourg’s 36 notarial offices had to close, because they are not only dedicated to real estate transactions, she said in a telephone interview. Notaries signed 30% fewer transactions last year compared to the previous year.
Only 749 apartments, new or old, were sold in the last quarter of 2023, a drop of 42% compared to the same period in 2022, Statec and the Housing Observatory indicated last week. This is the lowest number of transactions recorded over a quarter since the creation of the land register in 2007.
Real estate worth around 435 million euros was sold in the fourth quarter of last year, representing a year-on-year decline of 48.8%.
“Since January, activity has resumed, but only with regard to the units already built. For now, we have plenty to do. After covid, many people wanted to settle their estate and their last wishes,” explains Mr. Schaeffer. This activity did not compensate for the shortfall in real estate activity, she added.
The average prices of a house or apartment decreased by 14.4% in the last quarter of 2023 year-on-year. Over the whole of 2023, housing prices fell by 9.1% after having increased by 9.6% in 2022, according to figures published on Wednesday.
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Notaries charge the new owner around 1% of the transaction price. In addition, the government levies a 6% tax, registration fee, on sale.
Since January, activity has resumed, but only with regard to units already built.
Martine Schaeffer
Notary
First-time buyers benefit from the “Cheap act”, a tax credit intended to cover these costs. This credit should increase by 10,000 euros to reach 40,000 euros per person this year and will apply retroactively from January 1.
To support the construction sector, the government is dedicating millions of euros of public funds to purchasing unsold homes and providing incentives for private buyers. This includes halving the capital gains tax applied to real estate sales, to around 10%, which is already having an impact, according to Mr. Schaeffer. “Those who have to sell because of a divorce, a bridging loan coming due or because their new property is ready, sell now because the capital gains tax will be reduced,” emphasizes She.
Real estate agencies in the doldrums
While the construction sector benefits from state aid, the country’s real estate agencies have been sidelined after the government rejected a request for support for short-time work benefits for brokers who have found without work.
Agencies have started laying off freelancers and 200 agents are currently registered with the national employment agency Adem, said Jean-Paul Scheuren, director of the Real Estate Chamber.
When the real estate market was booming, as many as 2,000 agencies, including one-person companies, enjoyed double-digit annual growth, according to the tax office. But activity on the secondary market – agencies specializing in already built properties – has since fallen by 50% compared to the previous year, explains Jean-Paul Scheuren.
Jean-Paul Scheuren © PHOTO: Anouk Antony
The number of applicants for a real estate license fell by half between 2022 and last year, but several hundred people are still taking the courses this year. In total, Jean-Paul Scheuren anticipates around 400 layoffs in the sector, but does not expect companies to completely close their doors.
His hopes for a recovery in the sector rest on falling interest rates and the fact that banks pass this drop on to their customers. The market has slowly started to recover since the start of 2024, indicates the president of the Real Estate Chamber. “We are seeing the number of transactions increasing. However, certain price adjustments must be accepted by the seller,” he explains.
State coffers are emptying
The slowdown in real estate activity has also been costly to state coffers. Not only is the government spending millions to support the construction sector, but revenue from real estate transactions has also fallen.
Revenue from registration fees fell by more than half between 2022 and 2023, reaching 232 million euros, according to the tax administration’s annual report. The last time it recorded levels this low was in 2015, when house prices were around 30% lower.
For this year, Finance Minister Gilles Roth forecasts revenues of only 220 million euros, according to the 2024 budget, which he unveiled in March. These tax revenues are not expected to reach their 2022 level in any year of the budget forecast until 2027.
Value added tax (VAT) revenues linked to the real estate sector also fell last year, by 17.5% year-on-year, to reach 16 million euros, according to the report from the office of taxes.
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If the government’s measures aim to support the sector and will be beneficial for its own budget, households risk paying the price. Last week, the International Monetary Fund warned that measures aimed at stimulating demand for housing could again drive up prices and worsen household debt and affordability.
“These measures could help restore confidence and ease pressure on the construction sector. However, given supply constraints, stimulating demand risks leading to a further deterioration in household debt and affordability,” the IMF said in an annual assessment of Luxembourg.
“Ultimately, these measures can lead to moral hazard and encourage risk-taking. Overall, the IMF reiterates the importance of supply-side measures to reduce supply rigidity,” the assessment said.
The government will bring together councils and business representatives in April to discuss measures that could address the structural problems currently preventing more homes from being built.
Affordable housing remains the main concern of Luxembourg voters, according to the latest national Politmonitor poll.
This article originally appeared on the website Luxembourg Times.
Adaptation: Mélodie Mouzon
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