Luxembourg

Luxembourg Residential Real Estate Market Analysis 2024

Lalaine C. Delmendo

Luxembourg's residential property market woes continue - characterized by plummeting demand and declining construction activity, aggravated by the country's struggling economy.

Table of Contents

Housing Market Snapshot

During the year to Q1 2024, the average selling price for apartments fell by 8.72% to €7,802 (US$8,483) per square metre (sqm), according to the STATEC Luxembourg, the country's national statistics agency. It was the fifth consecutive quarter of year-on-year price falls.

When adjusted for inflation, the decline in prices was even bigger, at 11.59% y-o-y in Q1 2024.

Though on a quarterly basis, nationwide apartment prices were up slightly by 1.62% (1.27% inflation-adjusted) in Q1 2024.

Despite the decline, property prices in Luxembourg remain high, according to the International Monetary Fund (IMF). "Housing price growth, both real and nominal, has moderated but remained high even as demand has declined," said the IMF in its 2023 report.

In a later report by the IMF published in March 2024, it urged the Luxembourg government to expedite supply-side measures to allow an orderly rebalancing of the housing market.

"Given the slump in the housing sector, to reduce potentially durable disruptions to downstream activities, the government has unveiled several measures, temporary and permanent, to stimulate housing demand. These measures could help restore confidence and alleviate pressure on the construction sector," said the IMF.

"However, given supply constraints, the boost to demand is likely to result in further deterioration of households' indebtedness and affordability. Over time, these measures may lead to moral hazard and promote risk-taking. On balance, staff reiterate the importance of supply-side measures to reduce supply rigidity. Staff propose to frontload public investment in social and affordable housing in cost-efficient ways, with greater involvement of the private sector," added the IMF.

Luxembourg's house price annual change

By property type:

  • Existing apartments' average acquisition price fell by 8.63% (-11.5% inflation-adjusted) to €7,670 (US$8,339) per sqm in Q1 2024 from a year earlier, following y-o-y declines of 13.77% in Q4 2023, 9.67% in Q3, 3.72% in Q2, and 2.35% in Q1. The decline was higher at 11.5% in real terms. Yet quarter-on-quarter, prices were up by 1.69% (1.34% inflation-adjusted).
  • New apartments' average price fell slightly by 1.32% (-4.42% inflation-adjusted) to €9,340 (US$10,155) per sqm in Q1 2024 from a year earlier, after a y-o-y decline of 5.13% in Q4 2023 and increases of 8.41% in Q3, 15.12% in Q2, and 5.59% in Q1. On a quarterly basis, prices increased by 1.21% (0.86% inflation-adjusted).

Luxembourg Average Prices of Apartments graph

Demand for residential properties is plummeting, amidst high mortgage interest rates. During 2023, the total number of sales transactions for apartments in Luxembourg fell by a whopping 44.6% to 3,252 units from a year earlier. It was the lowest number of sales transactions recorded in recent years. Likewise, the transaction value declined by 47.8% y-o-y to €2.08 billion (US$2.26 billion) last year.

In Q1 2024, the number of sales transactions increased by 9.3% y-o-y but still one of the lowest ever recorded. The total value fell slightly by 0.4% over the same period.

Foreign homebuyers are also adopting a wait-and-see approach, amidst heightened global economic and geopolitical uncertainty. Foreigners can freely buy property in Luxembourg.

With weak demand, residential construction activity is falling. During 2023, the total number of dwellings with approved building permits fell by 5.3% y-o-y to 4,458 units, following a decline of 22.9% in the prior year. Then in Q1 2024, dwelling permits plunged by another 17.8% to 1,257 units as compared to a year earlier, based on figures from STATEC Luxembourg.

The wider economy is also struggling. In 2023, Luxembourg's economy contracted by 1.1%, in contrast to annual growth of 1.4% in 2022 and 7.2% in 2021, primarily due to a decline in exports and investment. Then in Q1 2024, the country registered another 0.4% economic contraction as compared to the same period last year, following y-o-y declines of 0.6% in Q4 2023, 2% in Q3, 0.4% in Q2, and 1.4% in Q1.

The European Commission expects the economy to register an overall economic growth of 1.4% this year while IMF projects a slightly lower growth of 1.3%.

Luxembourg is considered the richest country in the world, with a GDP per capita of US$129,810 in 2023, based on IMF figures.

Luxembourg GDP Per Capita graph

Demand Highlights

Property transactions plummeting

During 2023, the total number of sales transactions for apartments in Luxembourg fell by a whopping 44.6% to 3,252 units from a year earlier, following y-o-y declines of 14.1% in 2022, 0.1% in 2021, 6.2% in 2020 and 3.3% in 2019, according to STATEC Luxembourg. It was the lowest number of sales transactions recorded in recent years.

Likewise, the transaction value declined by 47.8% y-o-y to €2.08 billion (US$2.26 billion) last year, after falling by 10.7% in the prior year.

During 2023:

  • Existing apartments: the number of transactions dropped 34.4% y-o-y to 2,681 units and transaction value fell by 38% to €1.67 billion (US$1.81 billion).
  • New apartments: the number of transactions fell by a massive 68% y-o-y to a record low 571 units and the value of sales declined by 68.2% to €410 million (US$445.8 billion).

Demand remains weak this year. In Q1 2024, there were 901 sales transactions, up by 9.3% from a year earlier but still very low by historical standards. Transaction value fell slightly by 0.4% y-o-y to €548 million (US$595.8 million) over the same period.

Luxembourg Number of Apartment Sales Transactions graph

Homeownership rate falling

Most people in Luxembourg live in owner-occupied properties. However, homeownership in the country is noticeably declining in recent years, with more people choosing to rent.

During 2023, the nationwide homeownership rate stood at 67.6%, sharply down from 72.4% in the prior year, according to Eurostat figures.

With high property prices, an increasing number of people are choosing to rent. Tenants' rights are well protected. Most property is rented unfurnished, but for furnished properties, the rent cannot be more than double the previous rate. Rents can only be increased every three years.

Luxembourg Homeownership Rate graph

Supply Highlights

Construction activity continues to fall

During 2023, the total number of dwellings with approved building permits fell by another 5.3% y-o-y to 4,458 units, following a decline of 22.9% in the prior year.

The weakness of the residential construction sector continues this year. In Q1 2024, the number of dwellings in residential buildings with approved permits plunged by 17.8% to 1,257 units as compared to the same period last year, based on figures from STATEC Luxembourg.

By region:

  • Luxembourg City defied the national trend, with the number of dwelling permits in the city surging by 28.5% y-o-y to 415 units in Q1 2024.
  • In the Cantons of the East (Echternach, Grevenmacher, and Remich), dwelling permits plunged by 27.1% to just 105 units in Q1 2024 from a year earlier.
  • In the Cantons of the Centre (Luxembourg-countryside, and Mersch), there were 166 dwelling permits issued in Q1 2024, a sharp decline of 43.7% from a year ago.
  • In the Cantons of the South (Esch-sur-Alzette and Capellen), dwelling permits rose by 19.3% y-o-y to 421 units in Q1 2024.
  • In the Cantons of the North and the West (Clervaux, Diekirch, Redange, Vianden and Wiltz), dwelling permits plummeted by 58.6% y-o-y to 147 units over the same period.

Luxembourg Dwelling Permits graph

Housing Pact 2.0 launched to address affordable housing problems

In an effort to increase the housing stock in the country and make houses more affordable, the Ministry of Housing introduced the Housing Pact 2.0 in 2021. According to the Luxembourg Government's official website, the main goal of the new measure is to support municipalities in the development of affordable housing for the people.

To achieve this goal, Housing Pact 2.0 has three objectives:

  • Increasing the supply of affordable and sustainable housing;
  • Mobilizing existing land and residential potential; and,
  • Improving residential quality.

"Housing is the biggest challenge in Luxembourg for more and more people. However, with the impact of the health crisis and its consequences on public finances, the risk that municipalities and the state would give up on acquiring a significant number of affordable housing units was foreseeable. This would have compromised the purpose of our reform. That's why we have come up with an alternative," said Minister of the Interior Taina Bofferding.

Housing Pact 2.0 introduced a new Article 29bis, in order to strengthen the provision of affordable housing.

"Article 29bis ensures the creation of a higher number of affordable dwellings in each special development plan "new district" (PAP NQ) and thus ensures that a good social mix is maintained in new residential areas," said the government.

For each new PAP NQ affected by Article 29bis, a certain percentage of the total area meant for housing is reserved for affordable housing, as shown in the table below:

Scope of the PAP NQ Share of the gross built area to be reserved for affordable housing
For land classified as a building zone before February 18, 2022
10-25 dwellings At least 10%
>25 dwellings At least 15%
For land classified as a building zone after February 18, 2022
5-9 dwellings At least 10%
10-25 dwellings At least 15%
>25 dwellings At least 20%
Source: Luxembourg Government

Currently, 97 municipalities have signed up for the Housing Pact 2.0 and many of them have already drawn up their own implementation of the local action programme for housing (Programme d'action locale logement - PAL), said the Ministry of Housing during the 3rd Luxembourg Housing Conference held in May 2023.

"I am particularly delighted with this strengthened collaboration between the Ministry of Housing and the other players in affordable housing," said Minister of Housing Henri Kox. "It is only by working effectively together that the deployment of the important affordable housing reform can move forward quickly. This reform - the cornerstone of the national affordable housing strategy - is particularly important for achieving the right to housing."

Rental Market

Rental yields still low, rents stabilizing

Rental yields in Luxembourg are low. Based on a recent Global Property Guide research, the gross rental yields on apartments - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - averaged 2.67% in Q2 2024. It is slightly up from 2.59% in Q2 2023 but still far lower than the average rental yield of 5% six years ago.

Residential rents are more or less steady. In Q1 2024, the average apartment rent in Luxembourg fell slightly by 1.1% from a year earlier, in contrast to y-o-y increases of 0.8% in Q4 2023, 4% in Q3, 6.7% in Q2, and 11.6% in Q1, according to the Ministere du Logement.

Rents for houses, on the other hand, were up by 1.5% y-o-y in Q1 2024. Yet, it was the weakest growth registered since Q2 2022.

Nationwide, the average advertised rent for apartments was €1,748 (US$1,901) per month or around €33.53 (US$36.46) per square meter (sqm) in Q1 2024, based on figures from Ministere du Logement. For houses, the average rent was €3,366 (US$3,660) per month or €17.67 (US$19.21) per sqm over the same period.

In Luxembourg City, the country's capital, advertised rents are higher. The city's average advertised rent for apartments was at €1,871 (US$2,034) per month or €39.34 (US$42.77) per sqm in Q1 2024, while the average rent for houses was at €4,502 (US$4,895) per month or €22.19 (US$24.13) per sqm.

Luxembourg City is the centre of rental market activity in the country, accounting for more than 52% of the total 10,648 apartment rental ads in Q1 2024, and 23% of the 1,110 housing rental offers over the same period, according to Ministere du Logement.

Luxembourg Rental Index graph

Mortgage Market

High mortgage interest rates

Following the ECB's move to raise its key interest rate successively in the past two years to rein in inflationary pressures in the European Union, mortgage interest rates in Luxembourg have been rising rapidly in recent months.

In May 2024:

  • Floating rate and/or initial rate fixation (IRF) of up to 1 year: 4.81%, up from 4.44% in the previous year and far higher than the 1.36% two years ago, according to figures released by the Banque Central du Luxembourg (BCL).
  • IRF greater than 1 year and less than or equal to 5 years: 3.86%, slightly down from 4.08% in May 2023 but still a dramatic increase from 1.83% in May 2022.
  • IRF greater than 5 years and less than or equal to 10 years: 3.77%, slightly down from 4.18% in the same period last year but still sharply up from 1.8% two years ago.
  • IRF for longer than 10 years: 3.65%, down from 4.04% in the previous year but still up from 2.11% two years earlier.

Luxembourg Interest Rates for New Housing Loans graph

Likewise, the average interest rate for outstanding housing loans also increased to 2.89% in May 2024, from 2.68% in the same period last year and 1.58% two years earlier.

Interest rates in Luxembourg are expected to gradually stabilize in the coming months after the ECB decided to lower its key interest rate by 25 basis points to 4.25% in June 2024, amidst easing inflationary pressures.

Most loans in Luxembourg have variable rates, so borrowers are very exposed to interest rate changes. The average loan-to-value ratio stands at more than 85%, with around 60% of all mortgages having loan maturities of 20 years and over.