Towards a property crisis? Thoughts on the causes of the undeniable slowdown in the Luxembourg property market.

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For once, let's start this article with a disclaimer. The following reflections are purely personal. They are based on numerous articles, statistics, exchanges with colleagues and expert debates over the last few months, but they do not claim to be exhaustive or to constitute the ultimate truth and should not be used as a basis for making financial decisions. It is important to point out that no one currently has any visibility on the evolution of the property market, which is very uncertain and dependent on the evolution of interest rates. The purpose of this article is above all to give some explanations for the phenomenon of the "slowdown" in the property market, which began in March 2022 as soon as the war in Ukraine broke out, and which clearly worsened for the first time in June/July and again at the end of October and December, after the successive increases in the ECB's key rate.


Table of contents

The main causes of the slowdown

The rapid and significant slowdown observed in 2022 is the result of a combination of several causes, of which we discuss below those that seem to have the greatest impact.

  • First and foremost, the rapid rise in interest rates

The fixed rate rose from +-1.3% at the beginning of 2022 to almost 5% at the end of the year. Variable rates have risen a little less, but still by about 3% in less than a year, and the rise is expected to continue in 2023.

This increase has a huge impact on the purchasing capacity of buyers. But it is only by doing simulations that you realise the true scale. For example, to borrow EUR 800,000 over 25 years at a fixed rate of 1.5% at the beginning of 2022, you would have to pay back EUR 3,200 per month. At the end of the year, with a fixed rate of 4.75%, the monthly payments have risen to almost EUR 4,600. This means an extra EUR 1,400 per month for the same loan.

If we simulate the purchasing capacity for equal monthly payments, the result is almost even more frightening. Let’s imagine that you are lucky enough to have a personal contribution of EUR 200,000 and that you can pay back EUR 3,200 per month. At the beginning of 2022, this would allow you to borrow EUR 800,000 and thus buy a property at a price of EUR 950,000, taking into account the reduced registration fees (“bëllegen Akt”). At the end of 2022, the same personal contribution and the same monthly payments of EUR 3,200 would only allow the purchase of a property at EUR 730,000. This is a loss of purchasing power of more than EUR 200,000 in less than a year.

These 2 examples illustrate our belief that the massive rise in interest rates is the main reason for the market slowdown. But not the only one…

  • A mismatch between market prices and new rates

The price boom we have seen in recent years has resulted in a very high price level, which was bearable as long as borrowing money was cheap thanks to very low interest rates (we are convinced that historically low interest rates are one of the main causes of the price boom since 2009).

On the other hand, with high interest rates, most buyers can no longer afford what they hope to buy (more on this later).

In summary: high prices + very low rates are fine; but high prices + high rates are not.

  • The wait-and-see attitude (and lack of motivation) of investors

Many investors now prefer to wait for “good deals”, often even on the advice of their bankers. As a result, investor demand has fallen sharply, which has a significant negative impact on demand. This fall is further exacerbated by recent (and pending) Government measures to demotivate investors.

It can certainly be argued that there are positives to this (less upward pressure on prices), but as is often the case there is also a downside. The market is less dynamic, sellers who have to sell for one reason or another can no longer find buyers as easily and are therefore stuck, not to mention that if more and more people can no longer finance a purchase to live in, they will be forced to rent… but if investors no longer invest, there will be a lack of rental accommodation, so we risk an even more serious housing crisis. But this is another subject, which will eventually be the subject of a separate article.

  • Caution on the part of banks

It has undoubtedly become more difficult to obtain bank loans. So even if a buyer wants to buy, it is not certain that he will be able to obtain financing. There has been a significant increase in the number of bank refusals, which obviously has an impact on sales, because it is not just a matter of finding a buyer, but also of obtaining a loan so that the sale can go ahead.

  • An increasing supply

The reasons may be diverse (e.g. fear that prices will fall significantly in the coming months, the obligation to sell because the owner can no longer pay the repayments or the bridging loan, etc.) but the observation is unanimous among property professionals: there have never been as many new mandates as in the last quarter of 2022.

However, we believe that it is possible that this trend will reverse again in 2023… but unfortunately not for the right reasons. Because if owners who move on to a new “life stage” (e.g. two singles become a couple, a couple has a (new) child,…) can no longer afford to buy a new property, they will not be able to sell theirs either. There is therefore a risk that supply will decrease because potential sellers will simply have to wait before they can afford to buy something else.

  • An imbalance between supply and demand

After years of demand far exceeding supply, the situation has drastically changed. Supply now exceeds demand. Not because there is no longer a need, but because buyers can no longer afford to buy.

According to the law of supply and demand, which is as old as trade itself, if there is more supply and less demand, prices must fall so that supply and demand meet again.

  • The rising cost of works and renovations

It is no longer news that the cost of renovations has exploded… This has a double effect. Firstly, the budget for buying a property to renovate is decreasing because a higher budget is needed for the work. Secondly, it is almost impossible to get quotes that are valid for more than a few weeks. This frightens and hinders buyers but also banks, which have become very reluctant to finance major works for which they have no visibility.

  • The general increase in the cost of living

Heating, electricity, but also petrol, shopping at the supermarket, restaurants… everything has increased and reduces purchasing power in general. So besides the property loan becoming more expensive, the repayment capacity of buyers is further reduced by the general increase in the cost of living, which further reduces the borrowing capacity.

But on the other hand…

  • There is still a general lack of housing

The fundamental problem of the housing market remains unchanged: the demand for housing still exceeds the supply, i.e. there is a shortage of housing to meet the demand. The current rental boom is the best evidence of this. We are therefore not in a situation where the market is fundamentally “at risk” from a surplus of housing. We therefore do not believe that we can, at this stage, speak of a “housing bubble”, but this does not mean that prices will not continue to fall in the short (and medium?) term, because of the reasons mentioned above.

  • Many people have to move

Life goes on! Even though moving may be delayed in some situations as mentioned above, other personal or family changes will still result in property transactions. For example, a growing family may be able to manage for a while, but will still need an extra bedroom at some point. They may not be able to buy their dream house, but they will have to move.

  • The market is likely to pick up again… very strongly So don’t be too pessimistic either and don’t miss the right time to buy. 

The latest figures show that building permits will be down by more than a third in 2023 compared to 2022. This is a ticking time bomb in a market that is already short of housing. As soon as interest rates fall, there is a risk of a new surge in prices, as we also saw after the financial crisis of 2008. In our opinion, investing in property is still a good choice, whether it is for your own home or as an investment.


The need to move and the willingness to buy clearly remain. Unless we enter a prolonged recession with devastating economic effects, demand for housing will continue to exceed supply for a long time to come. But the causes mentioned in the first part of the article make the market very difficult at the moment.
My personal opinion is that there are two possible outcomes to this stalemate.

Firstly, a significant drop in interest rates. This would be the “dream” alternative because not only would it allow buyers to take out loans again, but it would also mean that inflation would be brought under control and therefore construction and renovation costs would stabilise.

But as is often the case, one should not expect too much from dreams.

The second and more likely outcome in the short term would in our opinion be an interaction of 3 phenomena which together could help to “revive” the market:

1.    A rebalancing of prices: we can already see that real sales prices are falling and this trend is likely to continue. The more prices fall, the more accessible credit will become again. One may also ask whether a “readjustment” of 10, 15 or even 20% would really be serious? Psychologically, of course, yes, but this would bring us back to approximately the price level of 2020, which does not seem dramatic… at least for owners who bought before 2018 and who are still making a nice capital gain.

2.    Visibility on the evolution of variable rates: at present, many buyers can no longer afford to take a fixed rate but are afraid to commit to a variable rate because they don’t know how high it will go. As soon as we have better predictability on rates, buyers will be able to start with a variable rate and then possibly switch to a fixed rate.

3.    A readjustment of “dream expectations”: the new reality (prices that are still high + high interest rates) means that buyers will have to resign themselves to lowering their expectations. In our opinion, this is unavoidable. In order to move forward, buyers will at some point have to accept having one room or a few acres less, a slightly less modern house etc. But this change of mindset cannot be achieved in 3 months. Humans need a little time to accept a new reality that does not correspond to what they had imagined. But in the long run they will get used to it.

So then, should you sell or wait?

No one can give an exact and universal answer to this question.

On the one hand there are too many unknowns (to what extent the situation will become even more difficult before it gets better and how long it will take?) and on the other hand subjective personal assessments (e.g. a growing family needs more space; heirs may not want to remain in joint ownership or invest in an inherited property to be able to rent it out; if the property was the main residence it should be sold to avoid being taxed on the capital gain…)

My opinion, again very personal, is that if one can give oneself a 3 to 5 year horizon, it may be better to wait and launch the sale as soon as the market has recovered and recouped its losses. In the meantime, you continue to live in the building even if it is not 100% ideal or, if it is an investment property, you rent it out again.

But if you are forced to sell fairly quickly (e.g. divorce, inheritance where the heirs do not want to remain in joint ownership, renovation costs that would become too expensive, need for money, inability to cover repayments…) or you do not want to risk the potential disadvantages of renting out, then it is better to start selling quickly as you have no view on how the situation will deteriorate before it improves.

But if you do decide to sell, you should do so at a realistic price that is adapted to the new market conditions and you should expect a longer sales cycle than in recent years.


I hope that these personal reflections help you to make progress with your own. And if you want to talk about it in person, don’t hesitate to contact us on 585 506. We will try to understand your situation as well as possible and to advise you objectively, even if this means that you will still have to wait with the sale.

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