Demand rising strongly again.
Lalaine C. Delmendo | February 14, 2022
Quarter-on-quarter, the overall house price index increased 1.3% in Q1 2022 but dropped 2% when adjusted for inflation.
Existing dwelling prices rose by 6.7% y-o-y in Q1 2022 (-1.2% inflation-adjusted). New dwelling prices increased 5.1% (-2.7% inflation-adjusted).
Demand is rising strongly again. Residential property transactions in Belgium soared by 17% y-o-y to 143,283 units during 2021, according to Statistics Belgium, in contrast to a decline of 18.2% in 2020 and higher than the annual average growth of 9.8% in 2016-19. It was the second highest number of sales ever recorded. Then in Q1 2022, the total number of sales transaction in the three regions rose further by 15.7% y-o-y to 39,369 units.
During Belgium's housing boom (2000-Q3 2008), nationwide house prices soared by 129% (86% inflation-adjusted). Since the global financial 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 9.6% (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 2.5% in 2016, 3.6% in 2017, 2.5% in 2018, and 4.8% in 2019, on the back of improved economic growth.
Surprisingly, the housing market remained strong in the past two years, despite the Covid-19 pandemic. House prices rose by 5.7% in 2020 and by another 6% in 2021.
The Belgian economy expanded by 6.2% during 2021, following a 5.7% contraction in 2020. In Q1 2022, the economy grew by 4.9% from a year earlier, following y-o-y expansions of 5.7% in Q4 2021, 5.1% in Q3 and 15.2% in Q2.
Belgium's housing market is expected to continue growing, albeit at a much slower pace, amidst the deterioration in the purchasing power of households due to a surge in inflation, coupled with tighter monetary policy and the adverse impact of the Ukraine crisis.
“We expect house price growth to moderate and think prices will rise by around 4% in 2022,” said the ING. “Higher inflation and tighter monetary policy will put upward pressure on mortgage rates. The war in Ukraine could also lead to an increase in the risk premium set by banks.”
Economic activity is projected to slow in the coming months as soaring inflation due to the fallout from the ongoing Russian invasion of Ukraine, coupled with supply chain disruptions and weaker consumer sentiment, will negatively impact domestic demand and exports. Economic growth is expected to slow to 2% this year and to 1.8% in 2023, according to the European Commission.
Analysis of Belgium Residential Property Market »
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 property�s 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 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.
Economic slowdown
The Belgian economy expanded by 6.2% during 2021, following a 5.7% contraction in 2020. In Q1 2022, the economy grew by 4.9% from a year earlier, following y-o-y expansions of 5.7% in Q4 2021, 5.1% in Q3 and 15.2% in Q2.Economic activity is projected to slow in the coming months as soaring inflation due to the fallout from the ongoing Russian invasion of Ukraine, coupled with supply chain disruptions and weaker consumer sentiment, will negatively impact domestic demand and exports.
Economic growth is expected to slow to 2% this year and to 1.8% in 2023, according to the European Commission. This is compared to the IMF’s economic growth projections for Belgium of 2.1% in 2022 and 1.4% in 2023.
“The Belgian economy is temporarily losing momentum, owing to high (energy) prices and new disruptions in global supply chains because of the war in Ukraine and the strict coronavirus lockdowns in China,” said the National Bank of Belgium.
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.
Belgium’s economy has been sluggish since, registering an annual average growth of just less than 1.3% from 2009 to 2019.
Inflation surged to 9.65% in June 2022 – the highest level since October 1982, according to Statistics Belgium.
“The high inflation this month, as in recent months, is largely due to high energy prices. Energy currently has an inflation rate of 55.99% and accounts for 4.81 percentage points of the total inflation” said Statistics Belgium.
Nationwide inflation is projected to reach 8.2% this year, sharply up from 3.2% in 2021 and 0.4% in 2020, based on projections released by the National Bank of Belgium.
In May 2022, the country’s seasonally-adjusted unemployment rate fell to 5.5%, down from 5.7% in the previous month and the lowest level in about two years. Unemployment averaged 5.9% in 2018-21, down from 8% in 2010-17.
Belgium’s budget deficit was equivalent to about 5.5% of GDP in 2021, an improvement from a record 9% shortfall seen in 2020 but still far higher than its pre-pandemic deficit of just 2% of GDP in 2019. The deficit is projected to gradually fall to 5% of GDP this year and to 4.4% of GDP in 2023, according to the European Commission.
The country’s gross national debt was equivalent to 108.2% of GDP in 2021, slightly down from 112.8% in 2020 but still up from 97.7% in 2019, according to Eurostat. NBB expects the public debt to fall to 105.3% of GDP this year – a more optimistic projection as compared to the European Commission’s 107.5% estimate.