A housing market in need of confidence

With rising interest rates and a slowdown in construction, buying a property has become increasingly complex in the Luxembourg property market in recent years.

What are the differences between existing and new-build properties, what impact do public policies and financing constraints have, and what role does confidence in the sector’s recovery play in its development?

Pierre Clement is the founder and CEO of Nexvia.

Max Didier is CEO of the Compagnie de Construction Luxembourgeoise and President of the Federation of Property Developers in Luxembourg.

Charles Pletsch is Head of Retail Banking at Spuerkeess.

Bryan Ferrari: Let’s talk about the Luxembourg property market. According to the statistics, the situation has improved slightly since 2021–2022, but has stagnated in 2025. What is the feeling on the ground?

Pierre Clement: In the existing property market, we have experienced two very different phases over the last ten years. Up until 2021–2022, we had an extremely buoyant market for a while, with low interest rates, structurally strong demand, limited supply, and, above all, a very high level of confidence. Almost automatically, prices rose sharply, spiralling out of control between 2018 and 2021, with increases of over 10% a year. Then, from 2022 onwards, the situation changed completely, with interest rates reshaping the market. Since then, we have been in a period of normalisation, which involved a period of correction (in prices, ed.) in 2023. It has now been two years since prices have been relatively stable, and the market has recovered in terms of volume.

Max Didier: In the new-build market, the situation is different. Before 2022, we were building 3,000 to 4,000 new homes a year. That may seem like a lot, but to keep pace with Luxembourg’s population growth, we would need to build 7,500. The war in Ukraine triggered inflation and a rise in interest rates, which caused housing production to plummet. Last year, we built 1,500 to 1,600 units. With the government’s support package, we saw a slight recovery. But as this package didn’t come into effect until June 2025, production has fallen again, and today we’re at a standstill. 

Bryan: Can you remind us which package you’re talking about?

Didier: It was a package comprising certain tax measures, through which we could halve registration costs. We had incentives aimed at boosting volume, including in the existing housing stock. In fact, it was the existing housing market that benefited most. If we look at the figures from the Ministry of Finance, we see that 90% of the aid in euros is linked to the existing housing stock.

Clement: That’s true. Nevertheless, there were also other measures put in place to support new-builds. A return to accelerated depreciation at 6% had been proposed for investors in new-builds, as well as a rental tax credit of €20,000 per individual investor. That said, there is one constraint that has put the brake on investment in new-builds from 2021 onwards: the introduction of a minimum 20% deposit. And on top of this 20%, you have to cover ancillary costs with your own funds. This means you effectively have to contribute 30% of your own funds when buying a property in Luxembourg. The current price level, therefore, excludes a huge number of long-term savers from the market – people who were likely traditional bank customers with good jobs, who had a savings capacity of €1,000, €1,500, or €2,000 a month and who, rather than putting it into financial products, would buy a flat financed entirely by a bank. Today, these customers, even if they wanted to, can no longer do so, because this barrier exists. It is something which, in my opinion, has slowed down new-build construction.

Charles Pletsch: What has held back off-plan sales is the crisis of confidence. With interest rates on the rise, developers have run into difficulties. For almost the first time in Luxembourg, it became necessary to call upon completion guarantees. And it turned out that the completion guarantee, even though it is called that, does not actually guarantee completion. The result was a major crisis of confidence among consumers. That, in our view, is what caused the collapse of the off-plan sales market.

Didier: Indeed, there is a crisis of confidence. We are aware of that. That is why, internally, we have introduced certain measures aimed at restoring some confidence and reassurance to buyers. The provisions of the Civil Code relating to off-plan sales need to be adapted to today’s situation. These provisions are several decades old. I can confirm that the Minister for Justice has launched consultations with a view to proposing a potential update to these provisions in the near future. But we also need to address the issue of a developer’s potential bankruptcy. Because today, if a developer goes bankrupt, the buyer becomes a joint owner of an unfinished project, which is very problematic for individuals who have invested. What we want to establish in the short term is confidence from every perspective.

Bryan: You’re talking about a crisis of confidence. But isn’t this actually a crisis of purchasing power? Because prices rose dramatically when interest rates were low… and wages didn’t keep pace.

Clement: It is purchasing power in the property market that has fallen dramatically. We’re talking about a drop of over 25% in individuals’ purchasing power. That is the primary barrier to buying, including off-plan purchases of homes by private individuals. But on top of that, some transactions are extremely costly today when you take out a bridging loan to buy a larger new-build property, for example. These are transactions that are much harder to afford than before. In fact, 10 years ago, people were making excellent property deals almost without realising it. People often bought a first flat, which they sold for more than they expected, to buy a new house that was worth even more than when they bought it off-plan. It was obviously a very favourable climate that generated extremely high, perhaps even blind, confidence. Since 2022, we’ve been in the opposite situation. So people are much more apprehensive when they’re looking to buy a property. Fortunately, buying property remains a primary goal, especially when it comes to one’s own home. We all want a roof over our heads that we own. That is what leads to a relatively resilient market.

Didier: We do need to qualify the discussion a bit when it comes to off-plan sales. With off-plan sales, we know all the construction costs in advance, and they have risen significantly since 2021–2022. We’ve also seen wage indexation representing an increase of over 16%. But at the same time, nominal prices for new-builds haven’t gone up.

Clement: The situation for property developers today is far from straightforward. On top of construction costs, which are much higher than they used to be, energy efficiency measures – which are certainly beneficial for the long-term sustainability of the housing stock – are driving up production costs even further. So there are limits to what can be achieved on price alone.

Bryan: The problem in Luxembourg is that the country’s development is linked to affordable housing. According to business leaders, the main issue is attracting people who, despite high salaries, are reluctant to move here because housing is quite expensive.

Didier: Affordable housing is not the solution to all problems. The crisis will be resolved by the overall volume of housing production. Building 700 affordable homes rather than 350 won’t solve the crisis. We’d need more than 7,000 homes a year to get out of the crisis.

Bryan: Back then, just by waiting, you made a profit. But today, borrowing costs are higher. Shouldn’t we speed up the time between the decision to buy and the property becoming available?

Clement: I’m looking at it from the buyer’s perspective, from the demand side. What the buyer wants is a property that is finished, or nearly finished, and into which they can move within six months. What the buyer wants is to be able to plan ahead easily and reduce their risk. So obviously, if there were a solution to make new homes available straight away without having to wait 30 months, as is the case with a standard off-plan sale, that would be very attractive. Unfortunately, there are so many constraints that I’m not sure banks can currently provide off-plan financing for a developer. Or at the very least, the cost would be enormous compared to the capital required, which would make the property even more expensive.

Didier: As a developer, I agree with you. For us, the best project is one that moves quickly: its infrastructure and development plan are drawn up swiftly, it sells and is built quickly, it’s of good quality, and the buyers are happy. The real issue is actually getting construction off the ground. No one starts a project without pre-sales or the necessary funding in place. Today, the main issue is the volume of funding available for housing development. In Luxembourg, we have relied heavily on first-time buyers and on what we call in Luxembourgish the ‘Mëttelstand’, who have bought an extra flat to let out. But what is completely missing, when compared with other countries, are institutional or professional investors who buy in large volumes and who could provide an additional pillar of support for the market.

Bryan: Now, let’s take the people who are currently thinking about buying a property, whether on the secondary market or the new-build market, and put together an application with a bank. What are the aspects to consider?

Clement: The good news is that the current market is a bit less frenzied. We have more time to think, more time to view properties, more time to negotiate. In my view, what’s important today is to be rational. You mustn’t overlook the essentials. These days, it’s good to have a property with outdoor space and a garage. Location is also important. If these features aren’t there, it should be reflected in the price. What sells well are newer flats. They have significantly greater price resilience than older properties. Energy efficiency is a key criterion. The fact that no work is required in the next few years is a very important factor. People want predictability. So my advice to people buying on the secondary market is to check the quality of the property and its intrinsic features. But also to get all the documentation relating to its condition. Any good estate agent should provide you with a history covering at least three years.

Bryan: What about off-plan property?

Didier: If you’re thinking of buying a property off-plan, first of all, don’t hold out for a price drop. It’ll probably never happen. It’s like with shares: you wait for the best time to buy and sell, but that moment doesn’t really exist. What you need to do is properly assess the quality of the property you’re buying, look into who’s building it, and check the financial stability of the developer you’re buying from. That’s important. There’s no point in trying to get the lowest possible price; in fact, you should even ask yourself some questions if a developer offers you a 20% discount on your property.

Bryan: How do you assess a developer’s financial stability?

Didier: These days, your bank will carry out its own analysis of the developer. Then there’s also the Companies House register, which is publicly available. You can have a look at that. Ask your estate agent, a fellow solicitor, or someone else who’s used to carrying out this sort of analysis. We sometimes get the impression that some people pay more attention to the brochure when buying a car than to the specifications when buying a property that is, after all, worth 10, 20, or 30 times the price of a car. For the majority of people, it’s the most important investment decision of their entire lives.

Pletsch: Absolutely, you mustn’t leave anything to chance. We always say that before entering the market, you should go and see your bank manager. Firstly, to assess your borrowing capacity and understand your budget. Then, to find out everything that’s happening in the market. Because people aren’t aware of registration fees, VAT, the reduced rate, all that sort of thing. We need to explain it to them. The first step is a financing plan. With off-plan sales, the specifications are a very important document that can run from two to 20 or 30 pages, full of things people don’t necessarily understand.

Bryan: Does the bank ever turn down financing applications because the value doesn’t seem right to them, even though the client can actually afford it?

Plestch: It does happen that we ask for a sale to be completed first. So we come on board with the project after the sale. So we sometimes refuse pre-financing. It happens.

Clement: Indeed, sometimes the value accepted by the bank isn’t the same as the valuation. The bank then requires an equity contribution to bridge the gap. That holds up quite a few applications. I’d like to see far more transactions in the new-build market to help with the country’s housing efforts. Because ultimately, the housing problem doesn’t affect people like us, sitting around this table, who bought our homes 10 years ago. For us, housing costs are relatively reasonable given our circumstances. On the other hand, a young person arriving in Luxembourg today, aged 30 and earning €80,000 gross, will struggle to find decent accommodation. Or at any rate, the housing they have is no longer attractive compared to other places in the world where they could work. Because the people who come to Luxembourg are mobile, they often have the choice not only to come to Luxembourg but also to go to London, Frankfurt, or Paris. If housing here isn’t more advantageous than in those cities, the choice might not fall on Luxembourg.

Didier: What we tend to overlook in this discussion about price is that two variables determine the final price of a property. On the one hand, there’s the price per square metre. On the other hand, there’s the size of the property – in other words, the square metres to which that price per square metre is applied. If we compare the price per square metre with other European capitals, our prices aren’t actually that high. That said, if we compare the size of the homes, we have a very high average. So in Luxembourg, there’s a slightly external factor. It’s the housing densities set out in the PAG that impose certain property sizes on us. Sometimes the developer has no choice but to create large properties if they want to maximise the buildable potential.

Clement: Yes, that’s something I’ve noticed too. The number of studio flats that can be built in a new development is always very limited. However, I think the young working population arriving in Luxembourg would prefer to be able to rent a small studio at a reasonable price rather than end up in shared flats that used to be houses or large flats and have ultimately been divided into extremely expensive rooms. I think that when it comes to urban planning, we need to build based on real needs. People’s real need today is to live in the city. We’re in an extremely centralised country. Most jobs are in Luxembourg City, and the younger generation doesn’t own cars. These are people who have lived in capital cities and want to use public transport. They want to be close to shops, close to the gym, and close to the bar where they can go for a drink with their friends in the evening. I think that for them, it’s more pleasant to live in a small, well-designed flat, where you have everything you need nearby. Current housing, as it stands, doesn’t meet demand. Especially for small flats.