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Everything you need to know is included in our Luxembourg Property Pack
Are you thinking of investing in property in Luxembourg? Are you pondering if it's the right time to buy or if you should wait until next year?
Various opinions exist regarding market timing. Your Luxembourgish friend may suggest that it's currently a good time to buy property, but your business partner in Luxembourg City might advise waiting for better opportunities.
At Investropa, when we create articles or update our pack of documents related to the real estate market in Luxembourg, we prioritize evidence-based work, relying on reliable data and statistics rather than personal opinions or rumors.
We have thoroughly examined all the official reports and statistics available on government websites. Now, we have a comprehensive database of reliable information and we can help you determining whether it is currently advantageous to purchase real estate in Luxembourg.
Happy reading, and let's dive in!
How is the property market in Luxembourg these days?
Luxembourg is, today, an exceptionally stable country
Positive
Choosing a country with a stable real estate market is crucial as it offers a solid foundation for property appreciation and reliable returns on investment. It is an information you need as a foreigner who might buy a property in Luxembourg.
You probably already know that Luxembourg is an extremely stable country. The last Fragile State Index reported for this country is 18.7, which one of the highest scores in the world.
Luxembourg's exceptional stability today is largely due to its robust financial sector, which benefits from a favorable regulatory environment and attracts significant foreign investment, bolstering the country's economy. Additionally, its political stability is reinforced by a strong tradition of coalition governments and a high level of social cohesion among its diverse population.
All good for the stability. Now, let's redirect our attention to the economic forecast.
Luxembourg is on track for significant expansion
Positive
Before buying real estate, assess the economic situation of the country.
According to the IMF's estimations, Luxembourg is likely to finish 2024 with a growth rate of 1.3%, which is not bad. As for 2025, we're talking 2.9%.
The pace will even accelerate since Luxembourg's economy is expected to increase by 10.4% during the next 5 years, resulting in an average GDP growth rate of 2.1%.
The expected sustainable growth rate in Luxembourg indicates a stable and healthy economy, which can lead to increased demand for real estate as more people and businesses move to the area. This stability and growth potential make investing in Luxembourg's real estate market a promising opportunity for long-term returns.
Let's now look at other metrics.
Luxembourgish business owners don't have faith in the economy
Negative
Although the GDP forecast is an important metric, being based on foreign institutions, it may not fully capture the local sentiment in Luxembourg. Thankfully, in Luxembourg there is an official metric that is regularly reported. This doesn't apply to every country, so we're in luck.
Measuring business leaders' confidence in the current and future economic conditions, the metric known as the Business Consumer Index (BCI) is derived from surveys and assessments.
The Global Economy reports that the Business Confidence Index has reached a value of -10 for Luxembourg. To help you with interpretation, a pessimistic outlook is typically associated with a negative BCI score.
This is not new, business operators were not confident 12 months ago either. The BCI score, back then, was at -20.
The negative Business Confidence Index in Luxembourg can significantly impact the property market, resulting in reduced investment and slower growth in property prices. Buyers might find fewer options available and may struggle to locate motivated sellers or obtain favorable financing terms.
Luxembourg is providing less building permits
Negative
If you're thinking of investing in property in a country, the count of permits issued for real estate projects can help inform your decision. When more building permits are granted, it suggests that the property market is thriving and offers promising opportunities.
Unfortunately, the number of building permits granted is falling in Luxembourg.
Throughout the previous 12 months, according to STATEC, Luxembourg, the number of building permits delivered by the Luxembourgish municipalities fell by 20.3%, from 6,080 to 4,843 units.
Clearly, this is a negative sign. Let's explore further data.
One last point to consider - a decline in building permits directly affects the availability of properties. In such a situation, it is probable that housing prices will see an increase in Luxembourg in 2025.
Luxembourg's property market experiences relentless and soaring growth.
Positive
Luxembourg's home prices have increased by 67.0% in 5 years according to eurostat.
It means that if you had bought a penthouse in Luxembourg City for $1,000,000 five years ago, then it would now be worth around $1,670,000.
In recent times, Luxembourg's property market has showcased uninterrupted and accelerating growth. Property values have consistently increased, while market dynamics have intensified, signifying a buoyant and dynamic real estate sector within the country.
If you're thinking about buying a property in Luxembourg, that's a good sign. The market is active and growing. However, it might be a good idea to wait for prices to go down before you make your investment. That way, you can get a better deal.
You can find a more detailed analysis of the real estate prices in our property pack for Luxembourg.
Everything you need to know is included in our Luxembourg Property Pack
Luxembourg's population is growing and getting (a bit) richer
Positive
When considering a real estate purchase, pay attention to population growth and GDP per capita because:
- a growing population means more people needing homes
- a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)
In Luxembourg, the average GDP per capita has changed by 1.2% over the last 5 years. Though not substantial, there is still a positive trend of growth. Furthermore, the Luxembourgish population is growing (+10% in 5 years).
This means that, if you purchase a modern apartment in Luxembourg City and rent it out, you will find that each year, you'll attract more tenants with sufficient funds to cover the rent.
If you're considering purchasing and renting it out, this trend is a good thing. Then, there might be an increase in rental demand in Luxembourg in 2025.
Properties promise modest rental yields in Luxembourg
Neutral
Rental yield is a popular tool for assessing real estate investments.
It's the annual rental income of a property divided by its price. For example, if a Luxembourg property is purchased for €500,000 and generates €30,000 in annual rental income, the rental yield would be 6%.
The website Numbeo indicates that rental properties in Luxembourg promise gross rental yields from 1.6% and 4.3%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in Luxembourg.
It suggests a satisfactory level of income relative to the property's value.
As we mentioned before, the amount of available real estate will stay the same (and housing prices may be stable), but more wealthy people will be looking to rent properties. Then we can conclude that rental yields might increase in Luxembourg in 2025.
Everything you need to know is included in our Luxembourg Property Pack
In Luxembourg, inflation is anticipated to be minimal
Neutral
In two words, inflation is when costs increase.
It's when your typical plate of Luxembourgish gromperekichelcher costs 10 euros instead of 8 euros a couple of years ago.
If you're considering investing in a property, high inflation can bring you several advantages:
- Property values tend to increase over time, potentially leading to capital appreciation.
- Inflation can result in higher rental rates, increasing the property's cash flow.
- Inflation decreases the real value of debt, making mortgage payments more affordable.
- Real estate can act as a hedge against inflation, helping preserve the investment's value.
- Diversifying into real estate provides stability during periods of inflation.
In accordance with IMF projections, the inflation rate in Luxembourg will increase by 1.0% over the next 5 years, with an average annual increase of 0.2%.
This data shows that Luxembourg is expected to have near-zero inflation then. Prices won't rise and then your property investment may not appreciate.
Is it a good time to buy real estate in Luxembourg then?
Now it's time to draw our conclusions.
Luxembourg is known for its exceptional stability, and with the economy expected to grow by 10.4% over the next five years, it seems like a great time to invest in real estate. However, this economic growth can also lead to increased demand for properties as more people and businesses are attracted to the area. This heightened demand could drive property prices up, making it more expensive to buy a home or investment property in 2025. While the stable economy is a positive sign, it might also mean that competition for real estate will be fierce, potentially pushing prices beyond what many buyers are willing or able to pay.
Another factor to consider is that Luxembourg is issuing fewer building permits. This reduction in new construction can exacerbate the already high demand for existing properties, further inflating prices. With fewer new homes being built, the supply of available properties will remain limited, making it even more challenging for buyers to find affordable options. This scarcity can lead to bidding wars and drive prices up even more, making 2025 a potentially tough time to enter the market.
Luxembourg's population is growing and becoming slightly wealthier, which can also contribute to the rising demand for real estate. As more people move to Luxembourg and have more disposable income, they may be more inclined to invest in property, either for personal use or as an investment. This increase in demand, coupled with limited supply, can create a competitive market where prices continue to rise, making it difficult for new buyers to find good deals.
While rental yields in Luxembourg range from 1.6% to 4.3%, these figures suggest that the rental market might not offer the most lucrative returns, especially when considering the high property prices. Additionally, with inflation expected to be minimal, the cost of living may not increase significantly, but this also means that property values might not appreciate as quickly as in other markets. All these factors combined suggest that 2025 might not be the best time to buy property in Luxembourg, as the market could be too competitive and expensive for many potential buyers.
We sincerely hope this article has been helpful!. If you need to know more, you can check our our pack of documents related to the real estate market in Luxembourg.
-Will real estate prices go up in Luxembourg?
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.