The current state of the property market

What is your view on the current state of the property market?

Jean-Paul Scheuren (JPS):

We are seeing signs of recovery, particularly in the market for existing properties. Transaction numbers and volumes are now close to their historical averages. However, the same cannot be said for off-plan sales (VEFAs), which are struggling to gain momentum. That said, we remain confident that the market will recover sooner or later.

The key question is how long this standstill will last, as this has significant implications. The properties that have not been built in recent months—and those that won’t be built in the coming months—represent future rental stock that will not be available. This could trigger a domino effect, making it difficult to provide acceptable housing conditions for young people looking to establish themselves in Luxembourg, who are essential for driving our economy.

Jerry Grbic (JGr):

Our members report similar observations. Since the beginning of the year, clients have returned to the banks, gradually adjusting to the “new normal” of higher interest rates. Initially, many were surprised—even alarmed—by the sudden rate increases, delaying their decisions to invest in property. Some postponed their projects, while others turned to renting. Today, with interest rates stabilising and even decreasing, people are realising that the era of “cheap money” is over and that rates will not return to the near-zero levels of the last decade. This clarity has brought renewed confidence.

However, clients’ interest has mainly been focused on completed properties, leaving the VEFA market in a challenging position. This situation affects not only our country’s attractiveness to new talent but also the sustainability of a sector that provides livelihoods for many households: the construction industry.

What are the main challenges facing the VEFA market?

JPS:

I do not believe these challenges are linked to pricing, as downward adjustments have already been made. Corrections were necessary, as prices had likely risen too quickly following the COVID-19 pandemic, partly due to construction cost increases. At the same time, many investors have postponed their decisions, choosing instead to hold onto their capital in bank accounts. So, financial resources are not the issue. The main obstacle, in my view, is clients’ apprehension about committing to projects they fear might not start or be completed.

JGr:

The substantial drop in secondary market prices and the widely publicised difficulties of a few individual developers have undoubtedly influenced buyers’ decisions. That said, and without denying the charm of older properties, it’s worth noting that off-plan property prices have also decreased. Investing in new builds can be more economically advantageous in the long run, as they offer better energy performance and do not require costly renovation work.

Is now a good time to invest?

JPS:

Absolutely. Those who have visited a sales office recently have likely noticed that they’ve never been welcomed as warmly as they are today. Buyers are in a strong position to negotiate favourable terms, and there is a wide range of properties available, both for investors and those seeking a home. However, this window of opportunity is narrow. Some state subsidies are time-limited, and certain support measures are set to expire at the end of this year. It’s worth taking advantage of these before it’s too late.

The government has introduced several measures to revive the property market since the beginning of the year. Could this create confusion for potential buyers?

JPS:

Until recently, there wasn’t a centralised platform where individuals—whether investors or personal buyers—could navigate all the available subsidies based on their specific circumstances. That’s why we launched the website Aides.lu. This platform allows users to calculate their investments, check eligibility for interest subsidies, and ultimately determine whether they are bankable. The site was developed with support from the Ministry of Housing and is regularly updated.

JGr:

We’ve noticed that some people remain convinced that, given the rise in mortgage rates, their dream property is out of reach. However, when state subsidies, index-linked purchasing power adjustments, and the significant drop in property prices are all taken into account, some properties are becoming accessible again.

A site like Aides.lu is extremely valuable in this context. It complements the personalised support that bankers provide, helping clients prepare their financing plans.

Aides.lu provides better visibility, but how can we address the trust issue you mentioned, particularly with investors?

JPS:

This is indeed critical. We professionals must acknowledge that the golden days of properties being sold as soon as they were drawn on paper are behind us. If we want to sell, we must regain the trust of our fellow citizens and deliver added value. The strong reputation of traditional players is no longer sufficient. Furthermore, many dynamic newer entities lack the benefit of established reputations. To address this, we’ve developed a quality charter aimed at increasing transparency.

JGr:

Trust is paramount, whether it’s between clients and their bankers or with developers. Let’s not forget that most clients commit to loans spanning 20 to 30 years, often for one of the most significant projects of their lives: the home where they will live and potentially raise a family. A charter focused on transparency is a step in the right direction.

Is the charter mandatory, and how is its implementation monitored?

JPS:

It is not mandatory. Members who wish to adhere to it and use it as a credential sign an agreement with the Luxembourg Chamber of Real Estate. We have established a Monitoring Commission to carry out inspections and handle potential complaints. Developers who fail to meet their commitments will be publicly named. We believe the reputational risk they would face is a strong deterrent.

Additionally, our goal is to continually evolve and strengthen the charter. Given the competitive nature of the market, we believe it will encourage the harmonisation of transparency practices.

The housing crisis has seen banks face criticism for rising rates, stricter lending conditions, and increased margins. How do you respond to these allegations, Mr Grbic?

JGr:

We have indeed spent considerable time and effort this year educating the public to counter certain misconceptions.

First, it’s important to understand that banks were not responsible for the interest rate hikes in 2022. These decisions were made by the European Central Bank (ECB) as part of its efforts to combat inflation. Banks simply implement these policies, as the interest rates they offer are linked to the ECB’s rates.

Second, the decline in loan approvals is more a result of reduced demand—due to the factors I mentioned earlier—or the fact that some applications no longer met regulatory requirements. In Luxembourg, loans are strictly regulated to protect consumers, with rules on minimum deposits and repayment capacities. The ABBL is in regular contact with the CSSF, our regulator, to ensure that regulations remain practical. For example, in 2022, we successfully advocated for adjustments to bridge loan regulations.

However, let’s be clear: banks have always wanted to grant loans and will continue to do so. They follow a prudent lending policy, balancing responsibilities to savers, whose assets must be protected, and borrowers, ensuring they don’t take on unmanageable debt.

To boost the residential property market, several banks have joined forces to create Prolog Luxembourg S.A. What is its purpose?

JGr:

This is a support mechanism for the residential property sector, aiming to increase the supply of completed housing. It was founded by five Luxembourg banks:

• Spuerkeess,
• Banque Internationale à Luxembourg (BIL),
• Banque Raiffeisen,
• Banque de Luxembourg, and
• Société Nationale de Crédit et d’Investissement (SNCI).

Its goal is to unlock projects stalled due to insufficient pre-sales by offering purchase options at discounted prices for unsold units. This enables developers to secure the guarantees needed to proceed with construction.

With an allocation of EUR 250 million, the initiative could bring 800 to 1,300 homes to market if fully utilised.

How does the sector view this initiative, and why has its initial uptake been slow?

JPS:

Prolog is a solid initiative. The challenges lie in meeting the pre-sale targets, which many projects struggle to achieve. We may need to explore additional innovative solutions to overcome this hurdle.

JGr:

The minimum pre-sale requirement is an essential criterion. If pre-sales are too low, interim financing costs could jeopardise the entire project. That said, we encourage developers to present their projects to their banks, even if they haven’t met the quota. Banks and Prolog Luxembourg S.A.’s selection committee can review the applications and issue preliminary approvals, which may reassure hesitant buyers.

I am optimistic by nature and believe every crisis brings opportunities. I see this as a chance for banks and the property sector to collaborate more closely to find solutions.