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Belgium: Overview

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Last Updated: Jul 10, 2007

Strong demand in Brussels

Belgium’s house price boom continued in 2006, although weaker than 2005.

The average selling price of detached houses rose by 13%, significantly lower than 2005’s 30% price rise. Average apartment prices rose 11%, slightly lower than 2005’s 12% price rise.

Belgium has experienced 20 years of price rises, due to changes in economic fundamentals, as well as the long period of low interest rates.

Despite rapid price increases, rental yields remain healthy in Brussels, thanks to strong rental demand from diplomats and EU technocrats.

Although, there are no restrictions on foreigners buying property in Belgium, roundtrip transactions costs are generally high. Tenancy laws are biased against landlords, ensuring tenant security. Rental income taxes are moderate to high.

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RENTAL YIELDS

Good yields in Brussels

Gross yields are around 8% for apartments in Brussels, the centre of the rental market, according to Global Property Guide research. Gross yields for detached houses in the suburbs are around 6% to 8%, reflecting the strong demand for rental properties in the area.

The rental market is significant, at about 30% of the housing stock (23% in the private sector and 7% in social housing). In Brussels, 60% of households are renters. A significant high-income rental sector is found in the Brussels region.

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TAXES AND COSTS

Moderate to high effective income taxes in Belgium

Rental Income: Personal income tax rates range from 25% to 50%, depending on the taxable net income. The taxable net income is the cadastral value, increased by 40%, minus deductible expenses. As a result, the effective rental income tax is a bit lower than the headline rate, ranging from 12% to 21%.

Capital Gains: Capital gains tax of 16.5% is payable on gains on developed property held for less than five years. After a holding period of five years, no Capital Gains Tax is payable.

Inheritance: Inheritance tax rates in Belgium are progressive and vary according to the degree of kinship, region where the inheritance is opened, and the share inherited by each of the heirs.

Residents: Residents are taxed on worldwide income, at the rates previously mentioned.

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BUYING GUIDE

Total transaction costs are high in Belgium

Closing costs are high in Belgium, between 13.9% and 22.1% of property value. The bulk of the cost is accounted for by transfer duties, at 12.5% or 10%, depending on the property’s location. Roundtrip costs for new properties are much higher because of the 21% VAT.

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LANDLORD AND TENANT

Tenant protection laws are well-established in Belgium

Belgian law is pro-tenant.

Rents: Rents can be freely negotiated but rent increases above the inflation rate cannot be written into the contract. If there is a written contract, the rent will be automatically adapted once a year in accordance with the cost of living. Deposit payments must not exceed three month’s rent.

Tenant Security: Belgium’s landlord and tenant law is restrictive as regards the length of rental contracts. The main options for the duration of a lease are: a contract of 9 years and, alternatively, a contract for less than three years.

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ECONOMIC GROWTH

Improved GDP growth in 2006

Belgium is a small, developed country in western Europe with a GDP per capita of US$37,164 and a population of 10.4 million. Its capital, Brussels, is home to the headquarters of the European Union and the North Atlantic Treaty Organization.

GDP grew by 3% in 2006, the fastest rate since 2000. After the 2.4% growth in 2004, Belgium experienced a disappointing growth of 1.5% in 2005. GDP is expected to grow by 2.7% in 2007, as reform-oriented policies are continued.

Inflationary pressures remained palpable in 2006 due to higher wages and oil prices. Inflation was 2.3% in 2006 and 2.8% in 2005. With the interest rate hikes and the stabilization of oil prices, inflation is expected to ease to 1.9% in 2007.

The European Central Bank (ECB) repo rate has risen from a historic low of 2% (from June 2003 to Nov 2005) to 3.75% in May 2007. Interest rates for new variable rate mortgages were at 4.7% in Mar 2007; while the rate for 10-year fixed rate mortgages was 4.4%.

With a balanced budget since 2000, public debt has fallen as a share of GDP, allowing the government to fund the increasing welfare costs of an aging population through interest savings.

 

  • High yields in Brussels
  • Strong demand for rental units
  • Moderate to high transaction costs
  • Tiresome tenancy length limits
  • Moderate to high taxes

RESIDENTIAL PROPERTY FACTS
Price (sq.m): €2,150 For a 120 sq. m. property, usually an apartment. Rental Yield: 7.53% For a 120 sq. m. property, usually an apartment.
Rent/month: €1,620 For a 120 sq. m. property. Income Tax: 12.06% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 17.9% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 0.0 Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord & Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice.

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