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Financial Information for the Residential Property Buyer

Belgian housing market continues to weaken, amidst worsening economy

Last Updated: April 28, 2013

  Belgium annual house price change graph

Belgium’s housing market is now weakening, mainly due to stricter banking criteria and worsening economy.

Prices of “regular” houses in Belgium rose by 2.6% in 2012, to €194,394 (0.17% inflation-adjusted), according to Statistics Belgium (StatBel). Quarter-on-quarter, house prices actually dropped 0.87% (-1.23% inflation-adjusted) in Q4 2012.

Eurostat figures also showed that the Belgian housing market is slowing. House prices in the country rose by just 1.19% in 2012 from the previous year, after rising by 3.45% y-o-y in 2011. When adjusted for inflation, house prices actually dropped by 1.21% over the same period. On a quarterly basis, nationwide house prices fell by 0.74% (-1.1%) in Q4 2012.
However, the national figures conceal regional house price variations. During the year to Q4 2012:

  • In the Flemish region (Flanders), prices of regular houses rose by 3.43% (0.98% inflation-adjusted) to €209,125
  • In Walloon region (Wallonia), regular house prices increased 1.92% (-0.5% inflation-adjusted) to an average of €149,083
  • In Brussels-Capital region, regular house prices fell by 1.29% (-3.63% inflation-adjusted) to €352,977

By property-type:

  • The average price of villas and bungalows dropped by 0.9% to €329,417
  • Apartment prices rose by 0.9%,  to an average of  €202,844

During Belgium’s housing boom (2000-Q3 2008), nationwide house prices soared by 129% (86% inflation-adjusted). The housing boom was driven by low interest rates and increased competition between banks; and strong economic and wage growth.

Residential construction is also down. The number of dwelling permits fell by 15.1% to 3,545 units in January 2013 from a year earlier.  Over the same period, the Flemish region (-15.6%) saw the biggest drop in dwelling permits, followed by the Walloon region (-14.5%) and Brussels (-6.6%). In 2012, there were about 46,894 dwelling permits issued in the country.

In March 2013, the total amount of new mortgage credit drawn dropped by 1.4% to €2.7 billion from the same period last year, according to the National Bank of Belgium.

The average interest rate for housing loans with floating rate and with an initial rate fixation (IRF) of up to 1 year is currently about 3.5%. On the other hand, the average interest rate for housing loans with an IRF of over 10 years is about 4%.

The Belgian economy contracted by 0.2% in 2012, after expanding by 1.8% in 2011 and 2.4% in 2010, according to Belgostat. In 2013, both the IMF and the European Commission expects Belgium to grow by just 0.2%, as the country losses its competitive edge and the government cuts back spending.

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.

Belgium Average Price of Dwellings by location graph

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) over the same period, according to StatBel.

Prices also fell most in Brussels during 2009, though the falls were relatively insignificant. The average price of ordinary houses in Brussels decreased 1.9% in 2009; more than the 0.9% price fall for Walloon, and worse than the 1% nominal increase in the Flemish region. When adjusted for inflation, houses prices fell in all areas.

The drivers of Belgium’s house price boom were:

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

When these conditions were reversed with the global credit crunch, house price rises stopped. Then when the economy emerged from recession in 2010, the housing market bounced back strongly. However, due to the ongoing eurozone debt crisis, the housing market is now weakening again, with house prices in Brussels falling by 1.3% (-3.6% inflation-adjusted) in 2012.

Record low mortgage rates

Belgium Mortgage and Interest Rates graph

Mortgage rates moved down in March 2009 to 2.84% for floating rate mortgages and 4.16% for new mortgages with 10-year interest rate fixation (IRF), in line with the historically rock-bottom levels seen in 2005.

Interest rates recently peaked at 5.33% in October 2008 (for new mortgages with 10-year interest rate fixation (IRF), while those with floating rate and up to 1year IRF peaked at 6.02%.

Mortgage growth and stability

Belgium Outstanding Mortgage Loans graph

The Belgian mortgage market has been dominated by four major private financial institutions: Fortis, Dexia, KBC, and ING Belgium since a wave of privatization, mergers and acquisition in the 1990s. All four have interests spread across the financial industry including investment management, retail banking and insurance. Intense competition has led to low fees and charges, and more mortgage options.

Despite the credit crunch, the mortgage market grew 9% in 2008 and 7.5% in 2009. In Q1 2010, outstanding mortgage credit rose to €147.6 billion, 8.5% higher than a year earlier.

Fixed-rate mortgages dominate

Mortgages in Belgium typically have a 20 year duration, and a loan-to-value ratio of 80% to 85%. Since 2008, more than 80% of new loans have had interest rates fixed for the duration of the loan, or for ten years or more.

However, the sensitivity of households to interest rate changes has changed over the years. At the end of 2002, less than 20% of new mortgage contracts had an IRF of less than three years. Between 2003 and 2005, borrowers shifted to mortgages with shorter IRFs with interest rates typically one percentage point or more lower than fixed rate mortgages (FRM). The share of mortgages with IRF of less than 3 years rose to almost 60% at end-2004.

With the interest rate hikes from 2006 to 2008, households shifted to longer term FRMs. The share of mortgages with IRF of 3 years or less shrank to around 1% to 2% of total loans in 2007 and 2008.

Bank bailouts everywhere

Belgium Consolidated Government Debt graph

Belgian financial institutions were among the worst hit by the 2008 financial meltdown. Losses from international operations, exposure to the US subprime mortgage markets, and commitments to previous expansion programs led to massive liquidity problems.

For instance, Fortis, the largest mortgage lender in Belgium, was cash-strapped after paying €24 billion for participation in the €70 billion purchase of ABN Amro in 2007. To prevent Fortis collapsing, it was partly nationalized by the governments of Netherlands, Belgium and Luxembourg to the tune of €11.2 billion.

With assets bigger than the Belgian economy, Fortis is one of the biggest European banks bailed out in 2008. After the bailout, Fortis was carved up and sold, with only the insurance operations left. Its Belgian assets and operations were sold to BNP Paribas, after a lengthy and messy judicial process.

Dexia and KBC were likewise bailed out, after suffering major losses.

  • The bailout of KBC Bank, which has major operations in Eastern Europe, was one of the most expensive. A total of €7 billion was injected into KBC, and on May 2009 the government announced that it is providing a guarantee of €25 billion to KBC Bank.
  • The governments of France, Belgium and Luxembourg provided €6.4 billion to keep Dexia afloat.

In July 2010, Dexia and KBC Bank passed the EU-wide stress tests.

While the bailouts prevented a financial market collapse, they came at a huge cost. The initial bailout of Fortis led to the fall of the government in December 2008. The government’s public debt also rose significantly, from 84% of GDP in 2007 to 96.7% in 2009.

Subdued rental market

Belgium House Prices vs Rents graph

Belgium’s rapid price increases have pushed gross rental yields sharply down, to around 4.5% to 6% for apartments in Brussels, according to Global Property Guide research (see Rental Yields) in May 2009. From 1998 to 2008, rents in the private sector rose by a mere 27% while apartment prices rose 127% over the same period.

In 2009, private sector rents rose 4.9% while apartment prices rose by a mere 1.9%, In Q1 2010, private rent increase outpaced apartment price growth: 6% y-o-y compared with4.9%. These are not enough, however, to push long term yields up.

The rental market has been subdued for a number of years because of rent controls (see Landlord and Tenant section) and the rising number of homeowners. The rental market is significant, at 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. However, 60% of households in Brussels are renters, a fact partly encouraged by Belgium’s unusually high buy/sell costs.

Residential construction down

Belgium number of transactions graph

Dwelling permits and dwellings starts dropped from 2007 to 2009, due to the weak housing market. For instance, only 41,508 dwellings were started in 2009, compared to an average of 55,400 units from 2005 to 2007. Dwelling permits also fell to around 45,000 units in 2009, lower than 58,000 permit annual average from 2005 to 2007

In 2009, 113,000 dwellings were sold, lower than the more than 120,000 dwellings sold annually from 2005 to 2008.

By early-2013, residential construction remains down. The number of dwelling permits fell by 15.1% to 3,545 units in January 2013 from a year earlier.  Over the same period, the Flemish region (-15.6%) saw the biggest drop in dwelling permits, followed by the Walloon region (-14.5%) and Brussels (-6.6%). In 2012, there were about 46,894 dwelling permits issued in the country.

Belgium supply of dwellings graph

Belgian economy remains weak

Belgium gdp and wage growth graph

From 1997 to 2007, the country enjoyed a healthy economic growth of about 2.4% per year. However due to the global crisis, the economy contracted by 2.8% in 2009, after a measly growth of 0.99% in 2008. The economy bounced back strongly in 2010, with a real GDP growth rate of 2.4%.

The Belgian economy contracted again by 0.2% in 2012, from a real GDP growth of 1.8% in 2011, mainly due to the adverse impact of the eurozone debt crisis, according to Belgostat. In 2013, both the IMF and the European Commission expects Belgium’s economy to grow by just 0.2%, as the country losses its competitive edge and the government cuts back spending.

Quarter-on-quarter, real GDP actually dropped by 0.1% in Q4 2012, from a no growth in Q3, a contraction of 0.5% in Q2 and a 0.2% growth in Q1.

Belgium’s relatively higher labour costs (due to wage and pension increases linked to inflation) compared to its neighboring European countries, is also aggravating the situation. Ford Motor Co. closed its car plant in Genk last year and moved its production to Spain in search of cheaper labour. In addition, Caterpillar, the world’s largest maker of construction equipment, is planning to lay-off 1,400 of its workers at its plant near Charleroi due to high operating costs in the country.

Belgium gdp inflation

The harmonized unemployment rate in Belgium stood at 7.6% in 2012, up from 7.2% in 2011 but down from 8.3% in 2010. In February 2013, the unemployment rate stood at 8.1%.

Belgium’s inflation rate dropped to 1.11% in March 2013, from 1.19% in February and 1.46% in January 2013, based on figures released by Belgostat. It was the lowest level since February 2010.

In 2012, the headline deficit widened to about 3.9% of GDP, up from 3.7% in the previous year, according to the National Bank of Belgium.  The deficit figure includes the €2.915 billion contribution to the bailout of Franco-Belgian lender Dexia, which is equivalent to 0.77% of GDP.

The government aims to reduce the deficit to 2.46% of GDP in 2013, from an earlier forecast of 2.15%. To lower the deficit, Belgium agreed to make €1.4 billion savings and sell about €1 billion of state-owned assets.

The government’s gross debt was equivalent to 99.6% of GDP in 2012, from 97.8% in 2011 and 95.5% in 2010, and way above the EU limit of about 60% of GDP. Belgium’s public finances were one of the weakest in the eurozone partially due to an almost two years of political stalemate which was only resolved by end-2011.

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