Is it time to sell (some of) your property? Now is the time to think very seriously about it!For some types of property, the Government’s new measures combined with a little-known European directive of 2023 mean that, in our opinion, it’s high time to start selling. For others, it’s better to wait. Use our shared thoughts now to make an informed decision.
It’s been a long time since the property market has been influenced by so many decisive factors, some of which have had opposing effects on prices.
The bottom is probably (soon) to be reached. We can see that prices are beginning to stabilise, and that supply and demand are now coming together more easily than in 2023.
The chronic shortage of housing, combined with the fall in building permits over the past 18 months and the Government’s new measures, will gradually push prices upwards. While this trend seems inevitable, the 2 main questions are “when” and “which properties will benefit most”?
The first question is obviously a difficult one. The most optimistic are hoping for the autumn, while others say “sometime in 2025”. We’ll see more clearly with the next inflation figures and the decisions of the European Central Bank.
The second question can, in theory, be examined more rationally.
First of all, the Government’s measures are (logically) primarily aimed at new-build property.
Conversely, prices for “existing” properties have fallen much more sharply since the start of the crisis (by an average of 25% to 30%) than those for new builds. It is therefore logical to expect a more rapid and sustained rise in prices for existing properties once the market regains some momentum.
In our opinion, properties with a poor energy passport will be the big exception.
A 2023 European Parliament directive requires all residential buildings to achieve energy class E by 2030… and even D by 2033!
This directive obviously raises a lot of questions, and even more practical problems. For example, is it even feasible to make the required improvements to older homes that are currently rated G, H or I? What if the majority of a co-owners vote against the renovations, thereby blocking the rental or sale to a co-owner? Will craftsmen have enough staff and supplies to meet the deadlines for a demand that is likely to explode? And this is just the tip of the iceberg.
In true Luxembourg fashion, “the soup will certainly not be eaten as hot as it is cooked”. But one thing is certain:
Selling properties, especially flats, with a poor energy passport will become increasingly difficult.
Especially as most banks already have internal maximum price thresholds per square metre for granting loans on these properties.
Once the market picks up again, we expect to see:
- a revival in VEFA sales, with a slight upturn in prices,
- a strong upturn in demand and prices for existing properties with energy passes from A to D / E,
- a possible slight upturn in demand and prices for properties with an energy passport of F or below.
At Homexperts, we believe that 2024 is the most opportune time to sell investment properties rated F and worse.
Why is this?
- The stabilisation of prices currently being seen means that investors who start selling now run little risk of the price falling further during the sales process,
- The factors outlined above suggest that prices on these properties are unlikely to rise again (at least significantly) in the coming years,
- The 50% reduction in the capital gains tax rate is limited to 2024, which means that any investor who sells this year only pays half the tax,
- If the proceeds of the sale are reinvested in a VEFA rental property in 2024, the investor benefits not only from the temporary accelerated depreciation measures (6% over 6 years) but also from the tax credit “Investor bëllegen Akt” of EUR 20,000 per spouse.
Admittedly, investors will not be able to aim for the prices they could have achieved in 2020 or even 2019, but we believe that these prices will no longer be achievable for properties with a poor energy passport, even if they wait 4 or 5 years… as we move ever closer to the deadline set by the European directive.
In our opinion it is therefore better to take advantage of the many temporary measures valid only in 2024, rather than hoping for a return to better fortunes, which may not materialise.
So when should we start selling? Let’s do a quick retroplanning.
If you want to sign the deed in December (ideally before Christmas), and assuming that many investors are trying to sell their property this year and that notaries are likely to be swamped at the end of the year, you need to allow 6 weeks to set the date for the deed once the buyer has obtained bank approval. For bank approval, you should allow 8 weeks. It could obviously be quicker, but 2 months is currently no exception.
This would mean that the sales agreement would have to be signed by mid-September at the latest.
Considering, as usual, that there will be a marked slowdown in activity during the summer holidays and the possibility that the first buyer may not obtain his credit agreement and that a new buyer will have to be found, the least risky option would be to sign the preliminary sales agreement by the end of July.
Given that it currently takes about 4 to 5 months to find a buyer, you should start no later than the beginning of April and ideally as early as March.
Hopefully, the forthcoming inflation figures will point in the right direction, and the ECB will confirm in early March that it is maintaining its key interest rate, with the possibility of a cut during the 2nd or early 3rd quarter. This would obviously give buyers more confidence from March onwards, which would be perfectly on schedule.
Now that the Government’s measures are known, our recommendation is clearly to get ready now to start selling in March or early April at the latest.
Finally, the question arises as to whether properties with a poor energy passport can still be sold. We think so, although these sales will obviously be among the most difficult ones. It’s therefore important to plan ahead and aim for the right price. But it’s precisely this “right price” that could enable some buyers, especially first-time buyers, to become homeowners and repay their own loans rather than pay high rents.
Of course, these are our opinions alone, and we recommend that you take a critical look at them so that you can make an informed decision. If you would like to discuss this subject in more detail in order to make your own decision in full knowledge of the facts, please do not hesitate to write us or call Marc Neuen directly on 585 506.
