Modest house price rises in Belgium
Lalaine C. Delmendo | January 20, 2019
Belgium’s house prices continue to rise, albeit modestly, amidst a weak economy and warnings about a property bubble. During the year to Q3 2018, the nationwide house price index in Belgium rose by 2.6% (0.34% inflation-adjusted), after annual rises of 3.88% in Q2 2018, 2.53% in Q1 2018, 3.55% in Q4 2017 and 3.71% in Q3 2017, according to the Statistics Belgium. Quarter-on-quarter, the index increased 2.08% in Q3 2018.
New dwelling prices increased 4.03% y-o-y in Q3 2018 (1.74% inflation-adjusted). Existing dwelling prices rose by 2.2% over the same period (but dropped 0.06% when adjusted for inflation).
The housing market remains vibrant. The number of transactions of houses rose by 3.7% y-o-y during the first three quarters of 2018, according to Statistics Belgium. Apartment transactions increased by 3.7% y-o-y.
Residential construction is actually surging. During the first three quarters of 2018, the number of dwelling permits soared by almost 35% y-o-y to 48,111, and residential building permits issued also increased by a huge 36.4% to 22,040, 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.
The Belgian economy continues to disappoint. Then 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). Since then house prices have risen only marginally, by 1.12% in 2012, 1.14% in 2013, 0.96% in 2014, 1.51% in 2015 and 2.62% in 2016. House prices rose by 3.55% in 2017, amidst improved economic growth.
In 2018, the economy was estimated to have grown by about 1.5%, after expansions of 1.7% in 2017, 1.4% in both 2015 and 2016, and 1.3% in 2014. The economy is projected to expand by 1.5% this year and by 1.4% in 2020, 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. Power has been increasingly devolved. There is also a 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 second of these was reversed with the global credit crunch, house price rises slowed sharply.
From 2009 to 2017, house prices in Brussels increased by only 29% (11.5% in real terms). In the Flemish and Walloon regions, the local housing markets were more subdued, with prices rising by just 27% (9% in real terms) and 19% (2% in real terms), respectively.
In Q2 2018:
- In Brussels-Capital region, house prices rose by 3.75% y-o-y (1.91% inflation-adjusted) in Q2 2018, to an average of €428,855 (US$428,855). However, house prices dropped 2.96% (3.56% inflation-adjusted) q-o-q in Q2 2018.
- In the Flemish region (Flanders), prices of houses increased 4.08% y-o-y (2.23% inflation-adjusted) to an average of €240,590 (US$275,945). Quarter-on-quarter, house prices rose slightly by 0.16% (-0.46% inflation-adjusted).
- In the Walloon region (Wallonia), house prices rose by 4.32% y-o-y (2.46% inflation-adjusted) in Q2 2018, to an average of €164,288 (US$188,431). Though quarter-on-quarter, house prices fell by 0.13% (-0.74% inflation-adjusted).
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. The Belgian Federal Institute of National Accounts suggests that Belgian house prices are overvalued by about 9%. However 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. The Economist’s interactive graph of global cities house price index, published in August 2018, showed that Brussels’ house prices were 65% higher than they should be, based on median household incomes.
These claims were supported by a 2017 study by Moody’s Investors Service, which argues that Belgium is the second most overvalued housing market among the 20 advanced economies included in the survey, next to Norway.
Residential construction rising strongly
Residential construction activity is surging. The number of dwelling permits soared by almost 35% y-o-y to 48,111 during the first three quarters of 2018, and residential building permits issued also increased by a huge 36.4% to 22,040, according to Statistics Belgium. Some fluctuation is of course normal: dwelling permits rose by 11.7% in 2014, only to decline by 15.9% in 2015, and to increase again by 11.7% in 2016. Then in 2017, dwelling permits fell again by 1.1% from a year earlier.
- Flemish region registered a 49.4% annual growth in dwelling permits in the first three quarters of 2018 while residential building permits rose by 57.1% to 17,158 over the same period.
- In Brussels-Capital region, dwelling permits fell by 16.4% to 1,120 in the first three quarters of 2018 from a year earlier and residential building permits dropped 16.7% to 115 over the same period.
- In the Walloon region, dwelling permits fell by 1.5% y-o-y to 8,382 in the first three quarters of 2018 while residential building permits dropped 6.6% to 4,765.
Housing demand rising
- In the Flemish region, house transactions rose by 2.8% y-o-y to 42,502 units in Q1 to Q3 2018. Apartment transactions also increased 3% to 16,059 units.
- In the Walloon region, sales transactions of regular houses rose by 5.5% y-o-y to 23,508 units. Apartment transactions soared 14.7% to 4,176 units.
- In Brussels-Capital region, regular house transactions increased by a meager 0.1% y-o-y to 1,691 units in Q1 to Q3 2018. Apartment transactions dropped 0.9% to 6,596 units.
Record low mortgage rates
The average interest rate on housing loans fell to a record low of 2.15% in November 2018, down from 2.27% in November 2017 and 2.45% in November 2016, according to the European Central Bank (ECB).
In November 2018:
- Up to 1 year maturity: 2.11%, down from 2.28% a year earlier and 2.52% two years ago
- Over 1 and up to 5 years maturity: 1.86%, down from 2.1% a year earlier and 2.34% two years ago
- Over 5 years maturity: 2.15%, down from 2.27% a year earlier and 2.45% two years ago
From being largely stable from 2012 to 2014, mortgages rates have been falling again in recent years, after the ECB cut the key rate to zero in March 2016.
Mortgage market continues to expand strongly
The Belgian mortgage market has expanded continuously again in the past seven years – growing to about 36.4% of GDP in 2018.
Housing loans have soared in recent years. There were increases of 5.9% in 2017, 9.2% in 2016, 11.7% in 2015, 19.9% in 2014, 11.2% in 2013 and 6.5% in 2012, according to the ECB. In November 2018, outstanding housing loans rose by 9.3% y-o-y, to €164.42 billion (US$188.58 billion).
Mortgage lending has been strongly driven by loan refinancing, "with the large volumes of ´new´ loan production being offset by the historically high levels of prepayments observed throughout the market", according to Fitch Ratings.
The Belgian mortgage market is dominated by four major private financial conglomerates: Fortis Dexia, KBC, and ING Belgium. Intense competition has led to low fees and charges, and more mortgage options.
Moderate rental yields, subdued rental market
Gross rental yields on apartments in Brussels range from around 4.56% to 5.53% in Q3 2018, while yields on houses range from 4.46% to 5.01%, according to recent 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.
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.
Economic growth continues to disappoint
The Belgian economy expanded by 1.5% in 2018 – below the eurozone’s average growth of 1.9%, according to the National Bank of Belgium (NBB). The economy grew by a meagre 0.9% annually from 2008 to 2017.
The economy is projected to expand by 1.5% this year and by 1.4% in 2020, according to the European Commission.
From 1997 to 2007, the country enjoyed healthy economic growth of about 2.5% per year. But since the crisis, growth has been weak. GDP growth was 0.7% in 2008, -2.3% in 2009, 2.7% in 2010, 1.8% in 2011, 0.2% in 2012, and -0.1% in 2013, mainly due to the adverse impact of the eurozone debt crisis, according to Belgostat.
In November 2018, the country’s seasonally adjusted unemployment rate was 5.6%, down from 6.4% the previous year, according to the NBB.
Inflation was around 2.34% in December 2018, up from 2.13% a year earlier, based on the figures from Statistics Belgium.
Belgium’s budget deficit increased slightly to 1% of GDP in 2018, from 0.9% in the previous year. The deficit is expected to rise further to 1.1% of GDP this year and to 1.3% in 2020, according to the European Commission.
Despite this, the country’s gross national debt fell to about 101.4% of GDP in 2018, from 103.4% in 2017. The public debt is expected to fall further to 99.8% this year and to 98.7% in 2020.
- Belgium’s housing market surprisingly vibrant - January 20, 2017
- Reasonable yields for investors in Belgian property, but high transaction costs - May 03, 2016