Real Estate Investment: an expert’s view on the residential rental market in Luxembourg (Banque de Luxembourg)

Is it still profitable to invest in the residential rental market of the Grand Duchy? The Banque de Luxembourg discussed this topic with Jean-Paul Scheuren, President of the Real Estate Board of the Grand Duchy, in order to have some insights from an expert of that market.   

Market trends and price evolution

Investing in a residential property for rent is a good choice in Luxembourg. In fact, the demand for such properties is supported by the arrival of 8,000 up to 10,000 additional residents every year. On the other hand, the number of residential properties available for rent increases only by 2,500 up to 3,500 units per year and only 30% of the total housing stock is available for rent. This situation leads to the persistence and recurrence of high rents. 

A study conducted by CEPS – Instead highlights a steady rise in the price of real estate properties since the mid ‘70s, which means investments do not suffer any depreciation in the mid and long term. Mr. Scheuren emphasizes that this trend follows the economic development of the country which has been constantly growing, thereby leading to an increase and improvement of the local population’s purchasing power.

By taking into consideration the period July 2012-June 2013, the average selling price per sq. m. stands at € 4,069 and 4,965 for old and new apartments respectively. These figures move up to 4,500 and 5,600 € for Luxembourg City and the surrounding municipalities.   

Such prices make it difficult for low-income households to buy a property. Scheuren estimates that in this niche market there is a shortage of properties standing at about 15,000 units. With the right incentives from the government, this could ultimately turn into a very good investment opportunity.

Where to invest?

Undoubtedly, the smaller units are the best ones in order to make your investment a profitable one. Right now small apartments with a separate bedroom are more sought after than ordinary studios.

For those with a larger budget, larger units may be a good alternative too, provided you choose a property which is well structured and that stands out for the quality of its construction. 

New residential units offer many advantages: the quality of their construction which has a positive impact on their energy performance, not to forget tax benefits (such as reduced registration fees and very interesting depreciation rates).

Anyway, for any investment your first criteria shall be the estimated return on it. Jean-Paul Scheuren advises investors they should focus on properties located on areas where jobs, services, and shops are concentrated. With this in mind, the most attractive areas of the Grand Duchy are situated in the southern section of the country and primarily in Luxembourg City, while the so-called Nordstad – i.e. the urban area including Ettelbruck and Diekirch – is a good option too.

For additional information on the latest trends of the real estate market, please consult the following websites: http://observatoire.ceps.lu and www.statistiques.public.lu.

As you go through the data available there be careful because even though they provide a very comprehensive portrait of the current situation, it may be difficult to use them in order to predict future scenarios.

Do not forget: the assistance of a real estate professional is indispensable in order to make the best out of your residential rental investment!