2023-12-27 16:13:53
The year 2023 has been tough for the real estate sector and many have suffered as a result. Although expected, the drop in prices did not have the desired effect.
The prices of houses and apartments fell sharply during 2023 in Luxembourg. A direct consequence of rising interest rates. But if some were delighted to see prices fall for the first time in 15 years, they quickly became disillusioned.
Indeed, as prices gradually fell, interest rates tripled to reach levels of around 5% at the end of 2023. An increase which reduced the purchasing power of households who were preparing to buy or invest in real estate.
Experts calculate the drop in borrowing capacity to 30% since the first increase in ECB key rates. Clearly, a household that might borrow 1 million euros in 2022 saw this capacity plummet to 700,000 euros. Enough to discourage more than one. Especially in the climate of instability that we have experienced throughout the year.
Last year, some economists predicted a drop in rates as early as spring 2023. A prediction which was not confirmed since they oscillated between 4 and 5% throughout the year. With prices still very high and rates not decreasing, Many people have therefore decided to postpone their real estate project.
This obviously did not please the country’s developers and builders who saw the few remaining buyers turn to the existing market. While some were going bankrupt and others were selling off their goods, the big brands decided to play for time. Enough to keep VEFA prices at a high level.
The figures from the Habitat Observatory bear witness to this. Despite the considerable drop in activity in the new construction sector (-59.9%), prices “only” fell by 7.7% on off-plan apartments between the third quarter of 2022 and the third quarter of 2023.
For comparison, the price of existing apartments fell on average by 12.3% over the same period. The price of existing houses has, for its part, fallen by 18.7%, according to the Housing Observatory. Despite this general decline, the market has clearly not recovered.
Activity was at its lowest in the third quarter of 2023 and this does not seem to have improved at the end of the year. It is now the rental market that is on the rise. Good news for owners but not for tenants who have seen rents explode since the second quarter of 2022.
The sector is now under pressure and rents have reached record levels. This is also a real source of concern for the country since recovery will probably not happen tomorrow.
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