The cost of empty homes

By Audrey SomnardLex Kleren Switch to French for original article

How can property owners be encouraged to build on their land or rent out their properties? While the tax incentives no longer seem to be working, the property tax is taking a long time to be put in place, particularly for local authorities that are trying to hit hard. Here are some explanations.

This is the recurring issue that the new government has taken up again. With property prices soaring, it has long been attractive for investors simply to wait a few years and reap the rewards of the capital gain from the sale of their property, which is far more lucrative than rent. It's a situation that drives Gilles Hempel, director of Agence Immobilière Sociale, mad: "If you have a house worth €1,000,000, for example, and you're reaping capital gains of 10% a year, that means you have an extra €100,000 every year. At the moment that may seem more difficult, but in general that's what you get. However, with potentially only 3,000 euros of tax a year, increasing by 900 euros each year, it's not really something that hurts you. I believe that if we want a tax on unoccupied homes, it has to be a deterrent. That's the problem with the law, even if it hasn't yet been passed. There are no penalties at the moment, only incentives." The former government had in fact tabled a bill 8082 in October 2022, which was introduced by Taina Bofferding, then Minister of the Interior. This bill dealt with property tax, land mobilisation, as well as the taxation of non-occupancy of dwellings. However, the bill met with numerous formal objections from the Conseil d'Etat.

Gilles Hempel also saw limitations. "Personally, I also felt that the deadlines were too long. It gave owners far too much time before the law actually came into force. What's more, the amounts stipulated were quite low. In the first year, the amount was €3,000, rising to a maximum of €7,500 per year after 6 years. In my opinion, these amounts are not enough to motivate an owner." Because at the moment, property tax is very, very low in Luxembourg, and there is no additional tax for homes that remain empty. With no tax and an almost guaranteed capital gain on resale, an empty home costs its owner nothing and will ultimately bring in a lot of money. This is a situation that politicians seem to have realised, says Hempel: "If you look at the coalition agreement, the new government plans to review this bill. They have also said that the level of taxation will be increased and that its implementation will be accelerated. This shows that the new government recognises that the current level is too low, and that there is a willingness to address this problem."

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