Strong house price rises continue in The Netherlands
Lalaine C. Delmendo | June 27, 2020
In Amsterdam, the capital, the price of existing homes rose by 9.08% during the year to Q1 2020 (7.35% inflation-adjusted), to an average of €515,289 (US$584,418), according to Statistics Netherlands (CBS). House prices in the capital city increased 6.47% during the latest quarter (6.88% inflation-adjusted). Nationally, the average house price rose by 8.15% (6.43% inflation-adjusted) to €325,834 (US$369,546) in Q1 2020 from a year earlier, and by 4.14% (4.54% inflation-adjusted) from the previous quarter.
All property types rose in price, nationwide, during the year to Q1 2020.
- Apartment prices rose by 10.9%, to an average of €293,085 (US$332,404)
- Terraced house prices rose by 6.7%, to an average of €296,882 (US$336,710)
- Detached house prices rose by 7.7%, to an average of €471,418 (US$534,661)
- Semi-detached house prices increased 6.2%, to an average of €339,491 (US$385,035)
- Corner houses saw price increases of 8.4%, to an average of €311,413 (US$353,191)
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 2020, house prices rose by almost 43% nationwide, with Amsterdam registering spectacular price growth of 80%.
In Q1 2020, the number of dwellings sold in the country rose by 8.7% to 51,579 units compared to the same period last year, following almost steady sales last year, according to CBS. During 2019, there were almost 71,000 completions, over 6% up from the previous year and the highest level in a decade.
Yet there is a problem - the housing shortage in the Netherlands was estimated at about 200,000 units this year.
Unofficial figures in April and May indicate that the housing market remains resilient, despite the COVID-19 pandemic. According to NVM, around 2,500 to 3,000 properties are changing hands every week via NVM agents since mid-March, which is broadly in line with the pre-crisis situation.
“It would appear that home hunters still see possibilities,” said NVM chairman Onno Hoes. “In addition, interest rates are low and this is also the right season.”
Other local market experts seem to agree. “I cannot explain why houses are still going over the asking price (and substantially at that),” said financial advisor José de Boer. “I guess it is because we still have such a shortage of houses and apartments in the Netherlands and interest rates are still relatively low.”
The Dutch economy shrank by 1.7% in Q1 2020 from the previous quarter, the steepest decline since Q1 2009, and marking the end of a long period of continuous growth over the 23 previous quarters, mainly due to declining household consumption, according to the CBS. The economy is projected to contract by a huge 6.8% this year, due to the economic fallout from the coronavirus outbreak, 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.
Economy to contract sharply; budget deficit to reach record-highThe Dutch economy is heavily dependent on foreign trade, with exports accounting for 83% of the country’s GDP, making the economy very susceptible to external shocks. For instance 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.
Now, the COVID-19 pandemic is crippling the economy again.
The Dutch economy shrank by 1.7% in Q1 2020 from the previous quarter, marking the end of continuous growth over the 23 previous quarters, caused by coronavirus-related lockdowns and travel restrictions, according to the CBS.
The economy is projected to contract by a huge 6.8% this year, according to the European Commission.
Gross public debt is expected to rise sharply this year, to around 62.1% of GDP, from 48.6% of GDP in 2019, mainly because of all the emergency measures the government is implementing. This would be higher than the permissible upper limit of 60% stipulated by the EU Stability Pact.
The government expects the budget deficit to reach an all-time high of €92 billion this year, equivalent to 11.8% of the country’s GDP, in contrast to a surplus of 1.7% of GDP in 2019 - almost four times the allowable limit under the EU rules.
Inflation stood at 1.2% in May 2020, at par with the previous month but down from 2.4% a year earlier, according to Statistics Netherlands. Inflation is expected to slow sharply to 0.8% this year, from 2.7% in 2019, based on estimates released by the European Commission.
In April 2020, the nationwide unemployment rate rose to 3.6%, from 3.2% in the previous month and 3.4% a year earlier.