Belgium’s housing market weakening

Belgium’s housing market is now losing steam, as property demand wanes amidst rising interest rates. 

During the year to Q3 2023, the nationwide house price index in Belgium rose by a meager 1.15%, following y-o-y increases of 1.73% in Q2 2023, 4.36% in Q1 2023, 4.77% in Q4 2022, and 5.35% in Q3 2022, according to Statistics Belgium. It was the lowest y-o-y price growth since Q1 2015. When adjusted for inflation, prices dropped 2.26% over the same period.

Quarter-on-quarter, the overall house price index increased 1.8% in Q3 2023 (0.71% in real terms).

Existing dwelling prices were more or less steady in Q3 2023 as compared to a year earlier (but fell by 3.4% when adjusted for inflation). New dwelling prices increased by 5.05% (1.51% in real terms).

Belgium’s house price annual change

Demand is now falling rapidly. In the first three quarters of 2023, the total number of residential property transactions in the country dropped by a huge 17.5% to 92,741 units as compared to a year earlier, following y-o-y increases of 5.1% in 2022 and 17% in 2021, according to Statistics Belgium. All three regions saw a decline in residential property transactions in Q1-Q3 2023 as compared to the same period in the prior year.

During Belgium’s housing boom (2000-Q3 2008), nationwide house prices soared by 129% (86% inflation-adjusted). Since the global financial crisis, house prices have followed the economy. When the economy was strong, house prices rose. When the economy was weak, house prices stagnated.

When the economy emerged from recession in 2011, the housing market bounced back strongly with Brussels house prices surging by 9.6% (5.7% inflation-adjusted). After that house prices rose slowly, by an annual average of just 1.2% in 2012-2015. Since then the pace has quickened again. House prices rose by 2.5% in 2016, 3.6% in 2017, 2.5% in 2018, and 4.8% in 2019, on the back of improved economic growth.

Surprisingly, the housing market remained strong in the past three years, despite the Covid-19 pandemic. House prices rose by 5.7% in 2020, by 6% in 2021, and by another 4.8% in 2022. However, the housing market started to slow last year, as demand fell and the economy stagnated.

In 2023, Belgium´s economy grew by 1.5% compared to the previous year, marking a deceleration from the 3.2% growth in 2022 and the substantial 6.3% growth in 2021. This slowdown was attributed to a less favorable external environment and a decrease in domestic demand, as indicated by recent data from the central bank.

Projections suggest that Belgium´s economic growth will continue to be sluggish. According to the European Commission´s forecast, the real GDP growth rate is anticipated to be 1.4% in 2024 and 1.5% in 2025. However, the International Monetary Fund (IMF) paints a more pessimistic picture, predicting a modest growth of 0.9% in the current year and 1.2% in 2025.

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, is an officially tri-lingual city inside the Flemish region.

Each region and community has a separate parliament and executive administration, with power increasingly devolved. There is 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 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 figures from 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 conditions were reversed with the global credit crunch, house price rises slowed sharply. From 2009 to 2019, house prices in Brussels increased by only 28% (7% in real terms). In the Flemish and Walloon regions, prices rose in 2009-2019 by 37% (15% in real terms) and 27% (6% in real terms), respectively.

Surprisingly house price growth has noticeably strengthened in the past three years despite the pandemic. In 2020-22, Brussels house prices rose by 21.4% (6.2% in real terms). In the Flemish and Walloon regions, house prices increased by 20.5% (5.4% in real terms) and 18.2% (3.4% in real terms), respectively.

In Q3 2023:

  • In the Brussels-Capital region, the median price of detached houses plunged by 20.9% y-o-y to €850,000 (US$915,977) while it increased slightly by 1.5% to €505,000 (US$544,198) for attached and semi-detached houses. Apartment prices were unchanged at €260,000 (US$280,181).
  • In the Flemish region (Flanders), the median prices of detached, and attached/semi-detached houses rose by 2.5% to €410,000 (US$441,824) and by 1.7% to €300,000 (US$323,286), respectively. Apartment prices increased 3.8% y-o-y to €249,000 (US$268,327).
  • In the Walloon region (Wallonia), the median prices of both detached and attached/semi-detached houses were unchanged at €295,000 (US$317,898) and €180,000 (US$193,972), respectively. The median price of apartments rose by 4.6% y-o-y to €183,000 (US$197,204).

Belgium Median Prices of Apartments graph

Belgium’s house price overvaluation moderating

Belgian house prices remain overvalued, but there are many different opinions on the extent of overvaluation. Recent estimates put the overvaluation between 6% and 15%, a sharp deceleration from more than 50% before the pandemic.

According to a recent report published by KBC Economics in October 2023, the deceleration in house price growth, coupled with strong household income growth, high inflation, automatic wage indexation, and robust job creation, puts downward pressure on the overvaluation of the Belgian housing market. As a result, Belgium’s house price overvaluation has declined to just 6.8% in Q2 2023, from 16% in Q1 2022. This implies that the housing market is no longer so overvalued that there would be potential for a severe price correction in the coming years.

“Figures on activity and prices in the Belgian housing market show that the market has been cooling for some time without, however, correcting heavily. Certainly, in comparison with many other European countries, the Belgian market is holding up reasonably well. That said, even in Belgium, the house price correction in real terms (i.e., adjusted for general inflation) has already been considerable,” said the KBC report.

A recent study conducted by Belfius also showed a modest house price overvaluation of at least 8.73%, with the overvaluation most pronounced in the provinces of Antwerp and Walloon Brabant, the east of Limburg on the coast, the region around Liège and the Brussels-Capital region.

ING expects housing overvaluation to moderate further this year and affordability to improve but will remain worse compared to pre-2022. “Although interest rates have fallen recently, we do not expect a strong recovery in 2024. Despite lower rates, affordability is still worse compared to pre-2022,” ING cautioned. “Therefore, we expect modest house price growth of 1.5% for this year, which is a de facto decline in real terms, given that inflation is still likely to exceed 3%,”

This is supported by the National Bank of Belgium (NBB), the country’s central bank. In its Financial Stability Report 2023, the NBB noted: “Due to this moderation of house price growth, the gap between actual property prices and prices estimated using the Bank’s model declined to 10%. However, this indicator should be interpreted with caution given that it is an estimate based on an econometric model, which is more uncertain in the context of high inflation.”

An earlier study conducted by the Organisation for Economic Co-operation and Development (OECD) before the Covid-19 pandemic has suggested that Belgium’s housing market is overvalued by as much as 50% because incomes have not risen as quickly as house prices. Similarly, Deutsche Bank said that Belgian homes are 53% overvalued, with house prices still 51% higher than the historical average, relative to income.

Belgium House Price Indices graph

Property transactions falling sharply

Property demand is now declining in Belgium, as higher interest rates discourage homebuying. In the first three quarters of 2023, the total number of residential property transactions in the country dropped by 17.5% to 92,741 units as compared to a year earlier, according to Statistics Belgium.

By region:

  • In the Flemish region, residential property transactions fell sharply by 21.1% y-o-y to 57,854 units in the first three quarters of 2023, following annual growth of 8.2% for the full year of 2022 and 20% in 2021.
  • In the Walloon region, sales transactions were down 10.7% y-o-y to 26,435 units in Q1-Q3 2023, after falling slightly by 0.5% during 2022 and increasing by 10.3% in 2021.
  • In the Brussels-Capital region, sales transactions declined by 11.4% to 8,452 units in the first three quarters of 2023 as compared to a year earlier, in contrast to y-o-y increases of 0.7% in 2022 and 18.9% in 2021.

The slowing demand has already been evident in 2022, with transactions rising by a modest 5.2% to 150,724 units, a sharp deceleration from the prior year’s 17% growth. Before the Covid-19 pandemic, transactions had been growing by an annual average of nearly 10% from 2016 to 2019.

Belgium Residential Property Transactions graph

Residential construction activity is declining

In the first ten months of 2023, the total number of new residential building permits authorized in Belgium fell by 12.9% y-o-y to 21,518, following a 9.8% decline during the full year of 2022 and an 11% increase in 2021, according to Statistics Belgium. Similarly, dwellings authorized were down by 8.6% to 40,324 units, after a 10.6% fall in 2022 and a 4.2% growth in 2021.

By region:

  • In the Flemish region, residential building permits dropped 13.5% to 16,010 in the first ten months of 2023 from a year earlier while dwellings authorized declined by 10.6% to 30,922 units over the same period.
  • In the Brussels-Capital region, residential building permits fell slightly by 0.9% y-o-y to 116 in Jan-Oct 2023 while dwellings authorized increased by 1.5% to 526 over the same period.
  • In the Walloon region, new residential building permits were down 11.5% y-o-y to 5,390 in Jan-Oct 2023 and dwellings authorized fell slightly by 1.2% to 8,875 units.

Nine of the ten provinces experienced falling residential construction activity in the first ten months of 2023. Brabant Wallon saw the biggest y-o-y decline in terms of total number of new residential building permits, at 21.3%, followed by Vlaams-Brabant (-16.8%), and Antwerpen (-16.6%), Liège (-16.3%). Other provinces that saw a decline included Limburg (-13.3%), West-Vlaanderen (-11.4%), Luxembourg (-10.8%), Oost-Vlaanderen (-10.8%), and Hainaut (-10.2%). Only Namur saw a slight increase of 1.3%.

Belgium Residential Building Permits graph

Mortgage interest rates rising sharply, following ECB rate hikes

Interest rates in Belgium are dramatically rising, following the successive key rate hikes implemented by the European Central Bank (ECB) in recent months to rule out the high inflation in the region. In January 2024, the ECB kept its key interest rate unchanged at a record high of 4.5%, following ten consecutive rate hikes since July 2022.

As a result, the average interest rate for new housing loans rose to 3.9% in December 2023, from 3.08% a year earlier and 1.49% two years ago.

By initial rate fixation (IRF):

Belgium Interest Rates for New Housing Loans graph

Likewise, the average interest rate on outstanding housing loans rose to 2.09% in December 2023, up from 1.81% in the same period in the prior year and 1.74% two years ago.

By maturity:

  • Up to 1-year maturity: 5.26%, sharply up from 3.01% in December 2022  and 2.1% in December 2021
  • Over 1 and up to 5 years maturity: 2.32%, up from 1.64% a year earlier and 1.43% two years ago
  • Over 5 years maturity: 2.07%, up from 1.81% in the previous year and 1.74% two years earlier