Dutch house price boom continues!
Lalaine C. Delmendo | July 15, 2019
In Amsterdam, the capital, the price of existing homes rose by 6.23% during the year to Q1 2019 (3.6% inflation-adjusted), to an average of €472,375 (US$536,686), according to Statistics Netherlands (CBS). House prices increased 1.43% during the latest quarter (0.78% inflation-adjusted). Nationally, the average house price rose by 8.31% (5.63% inflation-adjusted) to €301,279 (US$341,161) in Q1 2019 from a year earlier, and by 2.75% (2.09% inflation-adjusted) from the previous quarter.
All property types rose in price, nationwide, during the year to Q1 2019.
- Apartment prices rose by 11.7%, to an average of €264,409 (US$301,147)
- Terraced house prices rose by 8.54%, to an average of €278,167 (US$316,817)
- Detached house prices rose by 6.85%, to an average of €437,633 (US$498,440)
- Semi-detached house prices increased 6.24%, to an average of €319,663 (US$364,079)
- Corner houses saw price increases of 7.18%, to an average of €287,343 (US$327,268)
After a housing boom lasting almost 15 years, the Dutch housing market weakened in 2008, and only began to recover in 2014. From Q1 2014 to Q1 2019, house prices rose by almost 34% nationwide, with Amsterdam registering spectacular price growth of 72%.
Yet despite robust demand, property transactions are falling. In Q1 2019, the number of dwellings sold in The Netherlands fell by 9% y-o-y to 47,431 units, according to the CBS. That is partly because housing supply remains limited. In Q1 2019, dwelling starts fell by 6.1% to 2,108 units while completions rose by 6.1% to 2,093 units, based on figures from the CBS. Currently, there are a total of 7.8 million dwelling units in the country.
The housing shortage in the Netherlands was estimated to have risen to about 263,000 units this year, from 178,000 units in 2017, based on a 2019 report published by Capital Value.
House prices nationwide are expected to rise further during the remainder of the year.
“'Rising prices, falling sales'. This was the housing market in a nutshell in 2018, and we expect the same for 2019,” said Rabobank in its latest quarterly report.
“Because supply of houses for sale remains low, we expect the number of sales to decrease further in 2019. For this year, we expect around 205,000 sales, whereas for 2020 we expect around 195,000 sales.”
“We also stand by our earlier prediction that the price index for existing owner-occupied homes will rise this year by 6%,” added Rabobank.
In the first quarter of 2019, the economy grew by 1.7% from a year earlier, the country's 22nd consecutive quarter of expansion. However economic growth is projected to slow to 1.6% this year and in 2020, according to the European Commission.
Rental yields remain attractive in The Hague
Gross rental yields from apartments in the Netherlands continue to be attractive. The returns on investment are not princely - but they beat those in many other countries, especially given the excellent security of the Netherlands, its stability, rule of law, generally vibrant economy, and good long-term prospects.
In Amsterdam, yields on apartments range from 3.7% to 5.3%. As usual, smaller apartments return higher yields than larger.
In The Hague, yields range from 5.6% to 6.4%.
The Hague is a less expensive city to buy in, and really merits consideration by investors. First, it is the seat of government, so most foreign embassies in the Netherlands and 150 international organisations are located in The Hague, including the International Court of Justice and the International Criminal Court. Several large international businesses have their headquarters in The Hague, including Shell, the world's second largest company in terms of revenue. This means that there is an ideal group of expatriate tenants to whom owners can rent their apartments, as 26% of the jobs in The Hague are either offered by the Dutch government or by international institutions. In addition, for those interested in the short-term rental market, tourism is important, with 1.2 million tourists a year.
English is spoken virtually everywhere in the Netherlands, and non-Dutch speaking property investors from abroad will experience no difficulty navigating the environment.
Round trip transaction costs are mid-range on residential property in the Netherlands, see our Netherlands transaction costs analysis and our Netherlands transaction costs compared to other locations.
Taxes are generally high in the Netherlands
Rental Income: The income tax on renting residential property is quite high, though the tax is not really an income tax. In reality it is a flat tax, with 30% levied on the assumed rental yield. As of 2017, the applicable deemed rental yield depends on the value of the assets.
Capital Gains: For the sale of real estate that was used as part of a rental business enterprise, capital gains are taxed as part of income in Box 3 i.e. 30%.
Inheritance: Wealth acquired by inheritance from an individual who has properties in the Netherlands is subject to inheritance tax. Different rates apply, depending on the relationship between the heir and the testator where there are three categories.
Residents: Residents are taxed on their worldwide income.
Total transaction costs are moderate in the Netherlands
Total transaction costs are between 6.63% and 9.86% of the total dwelling price for existing houses, which is moderate by international standards. The bulk of these costs are paid by the buyer, including the transfer tax,legal fees and registration fees. Real estate agent’s commission at 2% to 4% (plus 21% VAT) is shared between buyer and seller.
If the property is newly constructed (or less than two years old) the transfer tax is replaced with the 21% VAT.
Almost impossible to evict tenants in the Netherlands
Dutch rental market practices are pro-tenant.
Rent: Landlords can set the rent freely and adjust the rent, for properties above the ‘liberalization rent limit’ of €604.72 per month. A deposit of two to three months is customary.
Tenant Security: The most dangerous aspect for a landlord in the Netherlands is that once a property has been rented, tenants are almost impossible to evict. The basic Dutch rental contract is one of unlimited duration. Landlords can only give notice in strictly defined cases, and it is extremely difficult for owners to evict tenants once they are established.
Modest economic growth, improving government financesThe euro crisis strongly affected the Netherlands, sending its economy into a recession in 2011 which continued in 2012 and 2013, with economic contractions of 1.1% and 0.2%, respectively. The Dutch economy is heavily dependent on foreign trade, with exports accounting for 83% of the country’s GDP.
In the first quarter of 2019, the economy grew by 1.7% in Q1 2019 from a year earlier, mainly driven by higher investments in fixed assets and household consumption, according to CBS. It was the country’s 22nd consecutive quarter of expansion. However the Dutch economy is expected to slow, with projected growth of just 1.6% this year and in 2020, according to the European Commission.
National debt continues to decline. During the recession, the government boosted the economy through stimulus programs and bank bailouts, resulting in a budget deficit of 5.6% of GDP in 2009, 5.1% of GDP in 2010 and 4.3% in 2011. As a result, the country’s debt rose to 71% of GDP in 2012, far higher than the permissible upper limit of 60% stipulated by the EU Stability Pact. By 2018, gross public debt had fallen back to 52.4% of GDP, as the country recorded a public budget surplus of 1.5% of GDP in 2018, up from surpluses of 1.2% of GDP in 2017 and 0.4% in 2016 and in contrast to deficits of 2.1% of GDP in 2015, 2.3% in 2014, 2.4% in 2013, and 3.9% in 2012.
Inflation stood at 2.4% in May 2019, down from 2.9% in the previous month but up from 1.7% a year earlier. Inflation is expected to accelerate to 2.5% this year, from an annual average of just 0.7% in the past five years.
In May 2019, the seasonally-adjusted nationwide unemployment fell to 3.3%, the lowest level since August 2008, according to the CBS.