Belgium's house price growth strengthens, despite falling demand
Lalaine C. Delmendo | June 12, 2021
During 2020, the nationwide house price index in Belgium rose by 5.74% (5.16% inflation-adjusted), the highest y-o-y rise since 2007, according to Statistics Belgium. Quarter-on-quarter, the overall index increased 2.2% in Q4 2020 (2.33% inflation-adjusted).
Existing dwelling prices rose strongly by 7.38% y-o-y in 2020 (6.78% inflation-adjusted). New dwelling prices rose by 5.21% (4.62% inflation-adjusted).
Yet demand is falling sharply. During 2020, the total number of residential property transactions in Belgium fell by about 18% y-o-y to 122,435 units, mainly due to the abolition in Flanders of the “woonbonus” rules last year (a system of tax deductions for people with a mortgage), aggravated by the adverse impact of the pandemic. The sharp decline in transactions last year was in stark contrast to the y-o-y rises of 14.8% in 2019, 5.2% in 2018, 4% in 2017 and 15% in 2016.
Residential construction activity remains more or less steady. In 2020, new residential building permits authorized in Belgium rose by 4.4% y-o-y to 28,645, according to Statistics Belgium.
During Belgium's housing boom (2000-Q3 2008), nationwide house prices soared by 129% (86% inflation-adjusted). Since the crisis, house prices have followed the economy. When the economy was strong, house prices rose. When the economy was weak, house prices stagnated.
When the economy emerged from recession in 2011, the housing market bounced back strongly with Brussels house prices surging by 9.58% (5.7% inflation-adjusted). After then house prices rose slowly, by an annual average of just 1.2% in 2012-2015. Since then the pace has quickened. House prices rose by 2.54% in 2016, 3.55% in 2017, 2.52% in 2018, and 4.78% in 2019, on the back of improved economic growth. House prices are expected to rise strongly this year.
In Q1 2021, the Belgian economy shrunk slightly by 0.6% from a year earlier, its fifth consecutive quarter of y-o-y declines amidst the coronavirus crisis. The economy is expected to return to growth this year, with a projected real GDP growth rate of 4.5%, following a contraction of 6.3% last year, according to the European Commission.
There are no foreign ownership restrictions in acquiring Belgian property.
Yields in Brussels moderate
Gross rental yields in Brussels range have remained steady over the past year. Gross rental yields on apartments in Brussels range from around 4.56% to 4.76%. Meanwhile, the difference between the yields on small properties, which tends to be higher, and those on larger properties, has shrunk.
The price of apartments and house in Belgium have been rising, according to the consultancy Stadim. So too have rents.
All of the apartments and houses included in our survey are located in the prime areas of Brussels. The prime areas we took were Brussels City, Etterbeek, Ixelles, St. Gilles, Uccle, Woluwe-St. Pierre, and Woluwe-St. Lambert.
The biggest reason that investors in Belgium will be discouraged is that round trip transaction costs are high for buyers of residential property. See our Belgium residential property transaction costs analysis and our Residential property transaction costs in Belgium compared to other countries
Moderate to high
effective income taxes in Belgium
Rental Income: Personal income tax 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 9.22% to 23.07%.
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 progressive rates, from 25% to 50%.
Total transaction costs are high in Belgium
Closing costs are high in Belgium, between 14.60% and 27.60% of property value. The bulk of the cost is accounted for by transfer duties at 10% or 12.5%, depending on the propertyï¿½s location. Roundtrip costs for new properties are much higher because of the 21% VAT.
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 monthï¿½s rent.
Tenant Security: Belgiumï¿½s 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.
Belgian economy to recover this yearEven before the pandemic, the Belgian economy was sluggish, with annual average growth of less than 1.3% from 2009 to 2019. In Q1 2021, the Belgian economy shrunk by 0.6% from a year earlier, its fifth consecutive quarter of y-o-y declines.
From 1997 to 2007, the country enjoyed healthy economic growth of about 2.5% per year. But since the financial crisis, growth has been weak. GDP growth was 0.4% in 2008, -2% in 2009, 2.9% in 2010, 1.7% in 2011, 0.7% in 2012, and 0.5% in 2013, mainly due to the adverse impact of the eurozone debt crisis, according to the NBB.
Yet Belgium’s economy is expected to return to growth this year, with a projected real GDP growth rate of 4.5%, following a contraction of 6.3% last year, according to the European Commission.
“The health situation is continuing to improve, with the number of infections declining and the vaccination rollout gathering pace,” said Daniela Ordonez, chief economist at Oxford Economics. “This means the initially ambitious reopening calendar is likely to be maintained, with almost all restrictions that have a clear economic impact planned to be lifted by the end of June, which should lead to record quarterly growth in Q3.”
In April 2021, the country’s seasonally adjusted unemployment rate fell to 5.3%, down from the previous month’s 5.8% and the lowest level since May 2020.
Inflation rose to 1.46% in May 2021 – the highest level since June 2019, according to Statistics Belgium.
Belgium’s budget deficit soared to a record 9.4% of GDP in 2020, far higher than its pre-pandemic shortfall of just 1.9% of GDP in 2019, amidst a surge in public spending, coupled with a decline in revenues. The deficit is projected to gradually fall to 7.6% of GDP this year and to 4.9% in 2022, according to the European Commission.
The country’s gross national debt was equivalent to 114.1% of GDP in 2020, sharply up from 98.1% in 2019. The European Commission expects it to rise to about 115.3% of GDP this year.
In October 2020, the Flemish liberal Alexander De Croo was sworn in as Belgium’s new prime minister, forming a seven-party coalition and ending a period of interim governments since the May 2019 elections.