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Dutch house prices accelerating!
In Amsterdam, the price of existing homes surged by 17.2% (15.5% inflation-adjusted) during the year to Q1 2017, to an average of €394,931 (US$452,879).Nationally, the average house price rose by 8.75% (7.11% inflation-adjusted) to €257,002 (US$294,712), according to Statistics Netherlands (CBS), and by 4.08% (3.79% inflation-adjusted) during the latest quarter.
All property types rose in price, nationwide, during the year to Q1 2017.
- Apartment prices rose by 7.6%, to an average of €208,490
- Terraced house prices rose by 7.4%, to an average of €239,064
- Detached house prices rose by 7.5%, to an average of €386,422
- Semi-detached house prices increased 5.5%, to an average of €281,432
- Corner houses saw price increases of 9%, to an average of €252,880
After a housing boom lasting almost 15 years, the Dutch housing market weakened in 2008, and only began to recover in 2014. Based on figures from the NederlandseVereniging van Makelaars (NVM):
- In 2008, house prices fell by 5.33% (-7.55% in real terms)
- In 2009, house prices dropped by 1.5% (-2.4% in real terms)
- In 2010, house prices rose by a meager 0.96% by dropped 0.65% in real terms
- In 2011, house prices dropped by 3.63% (-6.06% in real terms)
- In 2012, house prices fell by 6.7% (-9.54% in real terms)
- In 2013, house prices increased by 0.24%, but dropped 1.25% in real terms
- In 2014, the housing market started to recover, with house prices rising by 3.65% (2.7% in real terms)
- In 2015, house prices rose by 5.15% (4.47% in real terms)
- In 2016, house prices rose by 9.52% (8.8% in real terms)
Property transactions rose by 20.5% y-o-y to 214,793 units in 2016, the highest level since 2008, according to the CBS. In the first five months of 2017, property transactions soared by nearly 25% to 92,595 units compared to the same period last year, with sales up in almost all major cities and municipalities.
Despite the surge in demand, housing supply remains limited. In 2016, there were only 51,000 building consents granted, down by 4.7% from a year earlier. Moreover, there were just about 150,000 available housing units for sale across the country in early 2017, compared to 240,000 units four years ago.
Rabobank forecasts that nationwide house prices will increase by around 5% y-o-y this year. Transactions are also expected to rise to about 225,000 to 235,000 units next year.
In 2016, the Dutch economy expanded by 2.2%, after GDP growthof 2% in 2015 and 1.4% in 2014. In the first quarter of 2017, the economy grew strongly by 3.2% from a year earlier, its fourteenth consecutive quarter of expansion and the highest growth since 2008. The economy is projected to expand by 2.1% this year and by another 1.8% in 2018, 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 Dutch economy is heavily dependent on foreign trade, with exports accounting for 83% of the country’s GDP. Because of this, the 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.
In 2016, the Dutch economy expanded by 2.2%, after GDP growths of 2% in 2015 and 1.4% in 2014.
In the first quarter of 2017, the Dutch economy grew strongly by 3.2% from a year earlier, following annual growth rates of 2.4% in both Q3 and Q4 2016, 2.3% in Q2 2016 and 1.7% in Q1 2016, according to CBS. It was the fourteenth consecutive quarter of expansion and the highest growth since 2008.
The economy is projected to expand by 2.1% this year and by another 1.8% in 2018, according to the European Commission.
The 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. In 2016, the gross public debt remains high at 62.3% of GDP, from 65.2% in 2015, 68.8% in 2014 and 68.6% in 2013. In Q1 2017, the country’s government debt stood at 59.6% of GDP, the first time in six years that public debt falls below the 60% threshold.
On the other hand, the country recorded a public budget surplus of 0.4% of GDP in 2016, in contrast to deficits of 2.1% of GDP in 2015, 2.3% in 2014, 2.4% in 2013, and 3.9% in 2012. Netherlands is projected to record a surplus of 0.5% of GDP this year and 0.8% of GDP in 2018 while gross public debt is expected to decline slightly to 59.8% of GDP this year and to 57.2% of GDP in 2018, according to the European Commission.
Overall inflation stood at 1.1% in June 2017, from 1.1% in May, 1.6% in April, 1.1% in March, 1.8% in February and 1.7% in January, according to CBS. Overall inflation is expected at 0.93% this year, from 0.1% in 2016, 0.2% in 2015, 0.3% in 2014, 2.6% in 2013, 2.8% in 2012, and 2.5% in 2011, based on figures from the IMF.
In May 2017, the seasonally-adjusted nationwide unemployment stood at 5.1%, down from 6.3% a year earlier and the lowest rate since August 2011, according to CBS. Unemployment for men was 4.6% while it was 5.6% for women. In May 2017, there were 456,000 unemployed people in the country, the lowest level since December 2011.
Nationwide unemployment is projected at 4.9% this year and 4.4% in 2018, according to the EU.