Belgium’s house price growth strengthens, despite falling demand

Lalaine C. Delmendo | July 06, 2021

Surprisingly, Belgian house prices continue to rise, despite falling property transactions due to the abolition of “woonbonus” in Flanders coupled with the adverse impact of the COVID-19 pandemic.

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).

Belgium annual house price change graph

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.

Regional house price variations

Belgium is divided into three regions:

  • the Flemish Region that occupies the northern half with Dutch-speaking communities;
  • the Walloon Region which occupies the southern-half and is made-up largely of French-speaking communities, with a small German-speaking community in the south-east; and
  • Brussels, the administrative capital region, an officially tri-lingual city inside the Flemish region.

Each region and community has a separate parliament and executive administration, with power increasingly devolved. There is persisting ethnic conflict, and the political union has come under rising threat.

Property prices in Belgium’s three regions move in the same price cycle, but the capital has registered much the highest price increases. Prices in Brussels surged almost 200% (140% in real terms) from 1998 to 2008, much more than in the two other regions (143% for the Flemish region and 116% in Walloon), according to Statistics Belgium.

The drivers of Belgium’s house price boom were:

  • rapid mortgage market expansion, due to low interest rates and increased competition between banks; and
  • economic and wage growth.

When these conditions were reversed with the global credit crunch, house price rises slowed sharply. From 2009 to 2019, house prices in Brussels increased by only 28% (7% in real terms).

In the Flemish and Walloon regions, prices rose in 2009-2019 by 37% (15% in real terms) and 27% (6% in real terms), respectively.

Belgium median prices apartments

Surprisingly house price growth has noticeably strengthened last year despite the pandemic. During 2020:

  • InBrussels-Capital region, the median price of closed or semi-closed type houses rose by 8.8% y-o-y to €435,000 (US$526,739) and by 11% y-o-y to €960,000 (US$1.16 million) for open type houses. Apartment prices also increased strongly by 8.6% to €228,000 (US$276,084).
  • In the Flemish region (Flanders), the median prices of closed/semi-closed, and open type houses rose by 3.8% to €249,000 (US$301,513) and by 5.8% to €349,000 (US$422,602), respectively. Apartment prices increased 7.7% y-o-y to €210,000 (US$254,288) last year.
  • In the Walloon region (Wallonia), closed/semi-closed house prices rose by 4.7% y-o-y in 2020 to €155,000 (US$187,689) while open type house prices were up 5.8% to  €254,000 (US$307,568). The median price of apartments rose by 4.7% y-o-y to €155,000 (US$187,689).

Is the Belgian housing overvalued? Probably yes.

There is general agreement that the housing market slowdown has brought house prices back to "normal" levels. That begs the question, what is normal?

There are many different opinions, but research generally suggests that Belgian house prices are overvalued. Recently, the National Bank of Belgium (NBB) noted in its 2021 Financial Stability report that house prices are now about 14.1% overvalued – more than double the level of overvaluation two years ago.

“The increase in prices occurred despite the slower rise in household incomes in the current crisis and the end of the mortgage relief scheme in the Flemish Region, two factors that would tend to depress property price growth,” said the NBB.

“As a result, there is an increased overvaluation of the residential property market, i.e. the difference between observed prices and their fundamental value.”

Research by the Organisation for Economic Co-operation and Development (OECD) has suggested that Belgium’s housing market is overvalued by as much as 50%, because incomes have not risen as quickly as house prices. Deutsche Bank says that Belgian homes are 53% overvalued, with house prices still 51% higher than the historical average, relative to income.

Belgium house price indices

The Economist’s interactive graph of global house prices suggested that in 2020 Belgium’s house prices are 28% overvalued against household income and 35% against rent.

Residential construction remains steady

The number of new residential building permits authorized in Belgium in 2020 rose by 4.4% y-o-y to 28,645, according to Statistics Belgium. On the other hand, dwellings authorized were almost steady last year, at 55,457 units.

By region:

  • In Flemish region, residential building permits rose by 4.8% to 21,656 in 2020 from a year earlier while dwellings authorized increased slightly by 1% to 43,327 units over the same period.
  • In Brussels-Capital region, residential building permits rose by 9.4% to 151 during 2020 while dwellings authorized fell 31.3% to just 886.
  • In the Walloon region, residential building permits rose by a modest 2.9% y-o-y to 6,839 in 2020 while dwellings authorized dropped 3.5% to 11,244 units.

Belgium residential building permits

In the first two months of 2021, new residential building permits issued fell slightly by 0.8% y-o-y to 4,961 but the number of dwellings authorized increased 10.2% over the same period.

Property transactions falling

Residential property transactions in Belgium fell by about 18% y-o-y to 122,435 units during 2020, according to Statistics Belgium, in contrast to rises of 14.8% in 2019, 5.2% in 2018, 4% in 2017 and 15% in 2016.

By region:

  • In the Flemish region, property transactions fell by 23.9% y-o-y to 75,568 units in 2020, in stark contrast to an increase of 22.3% in 2019.
  • In the Walloon region, sales transactions fell by a more modest 5.8% y-o-y to 36,371 units in 2020, following a 1.7% rise in 2019.
  • In Brussels-Capital region, sales transactions were down by 10.3% to 10,496 units in 2020 from a year earlier, following a 4.7% rise in the prior year.

Belgium property transactions

The sharp decline in residential property transactions was partly attributed to the abolition in Flanders of the “woonbonus” rules in 2020, a system of tax deductions for people with a mortgage.

Record low mortgage rates

The average interest rate on housing loans fell to a record low of 1.81% in April 2021, down from 1.96% in April 2020 and 2.1% in April 2019, according to the European Central Bank (ECB). Over the same period:

  • Up to 1 year maturity: 2%, slightly down from 2.03% a year earlier and 2.05% two years ago
  • Over 1 and up to 5 years maturity: 1.6%, down from 1.62% a year earlier and 1.79% two years ago
  • Over 5 years maturity: 1.82%, down from 1.96% a year earlier and 2.1% two years ago

Belgium mortgage interest rates

From being largely stable from 2012 to 2014, mortgages rates have been falling again in the past several years, after the ECB cut the key rate to zero in March 2016 where it stayed since.

Belgian mortgage market continues to expand strongly

The mortgage market has expanded continuously in the past nine years – growing to almost 44% of GDP in 2020. During 2020, the total value of housing loans outstanding increased 10.7%, i.e. about the same as during the 2012-19 period, when annual average growth was 10.1%.

Belgium outstanding housing loans

In April 2021, outstanding housing loans rose further by 9.3% y-o-y, to €202.33 billion (US$245 billion), according to the ECB.

The Belgian mortgage market is dominated by four major private financial conglomerates: BNP Paribas Fortis, KBC Bank, Belfius Bank, and ING Belgium, which account for almost two-thirds of the entire banking sector. Intense competition has led to low fees and charges, and more mortgage options.

Moderate rental yields, large rental market

Gross rental yields on apartments in Brussels ranged from around 4.56% to 5.53%, while yields on houses range from 4.46% to 5.01%, according to Global Property Guide research. Meanwhile, the difference between the yields on small properties, which tends to be higher, and those on larger properties, has shrunk.

“Whilst current yield levels are low, they are higher than in the neighbouring countries and thus remain attractive for international investors as a geographical diversification providing stable returns and prospective capital value growth,” said JLL.

Belgium unemployment

The rental market is about 30% of the housing stock (23% in the private sector, 7% in social housing); but this is falling, and is down from 38% in 1980 and 33% in 1990, because of rent controls (see Landlord and Tenant section).

However, 60% of households in Brussels are renters, a fact partly encouraged by Belgium’s unusually high buy/sell costs.

Belgian economy to recover this year

Even 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.

Belgium gdp inflation

“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.

Belgium consilidated government gross debt

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.


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