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Reviving the Real Estate Market: Government and Banks Take Action

Reviving the Real Estate Market: Government and Banks Take Action

Housing prices are falling, but demand remains weak due to the high cost of credit. Concrete measures are needed to revive construction.

A total of 749 homes were sold in the last three months of 2023, representing only a third of the transactions in the years before the crisis. This significant drop in sales is due to several factors: economic slowdown, rising material and labor costs, and high interest rates.

Record Profits for Banks, Struggling Real Estate Sector

While Luxembourg banks are recording record profits, the real estate sector needs a new boost. This is why the banking association ABBL has presented concrete measures to support the sector and increase the housing supply. The press conference, held on Wednesday, brought together Finance Minister Gilles Roth, ABBL CEO Jerry Grbic, as well as leaders from Spuerkeess, BIL, Raiffeisen, and SNCI.

Price Drops Without Increased Demand

Real estate prices have reached their lowest level since late 2020, with a 14.4% drop between Q4 2022 and Q4 2023. Despite this, the number of transactions has decreased by 42% compared to 2022. The number of new homes sold is particularly low, the lowest since 2007.

The main reason: high interest rates, around 4%, which discourage potential buyers from taking out loans. According to ABBL, many citizens no longer meet the legal conditions for obtaining mortgage loans, and others struggle to repay their monthly installments, leading to a slowdown in new credit production and an almost total halt in the construction market.

Creation of a Special Purpose Vehicle

In response to this crisis, banks, in collaboration with the government, have created a corporation, the Special Purpose Vehicle (SPV). This structure aims to buy unsold real estate to continue ongoing projects, increase the supply of finished homes, and guarantee employment in the construction sector. Funded with 250 million euros, this SPV is expected to bring between 800 and 1,300 additional homes to the market.

Further financing measures will follow, decided by the banks. “Some banks have already taken steps in this direction,” says ABBL. This initiative underscores the banking sector's commitment to supporting Luxembourg's economy, creating jobs, and enhancing the Grand Duchy's attractiveness.


Source: This article originally appeared on the Luxemburger Wort website. Adaptation and rewriting by the real estate agency New Immo.

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