Jorge Teixeira, head of development and marketing at Agora, is also an executive PhD researcher in housing economics. His research focuses in particular on the impact of public policy and various property-related costs on sale prices. It is precisely in his capacity as a researcher, and strictly in a personal capacity, that he is speaking here.
You say that buying is no longer automatically preferable to renting. How do you explain that?
Jorge Teixeira. – «For a long time, buying seemed naturally more attractive because property prices were rising sharply. Buyers could therefore expect to sell on at a significant profit. Today, this appreciation is no longer guaranteed. When you factor in mortgage interest, maintenance, taxes, insurance and purchase costs, owning a property is only financially more advantageous than renting in a few European markets, notably Rotterdam and Dublin.
What is the situation in Luxembourg?
“The two options are almost neck and neck. In the city centre, renting retains a very slight advantage of 0.1 points. Across the municipality of Luxembourg as a whole, however, buying comes out on top, by 0.5 points. These margins are so narrow that a change in interest rates, rents or property prices could quickly alter the result.
To help readers who are new to this topic, could you explain what a 0.5-point difference actually means?
“One point corresponds to one percentage point applied to the value of the property. For a property worth €500,000, a difference of 0.5 points represents approximately €2,500 per year. This is therefore not a 0.5% increase or decrease in the property price, but rather the difference between the annual economic cost of buying and that of renting.
What would be the effect of a one-point rise in interest rates? “A rise of 100 basis points would shift the balance by around 0.8 points in favour of renting in all the cities studied, including Luxembourg. It would also reduce households’ borrowing capacity, without necessarily dampening their desire to buy. Access to credit would then become a greater constraint than the economic comparison between buying and renting. However, Luxembourg’s structural advantage would remain intact: registration fees depend on the property’s price, not on the loan.
You believe that, in Luxembourg, buying and renting are now almost the same. Could you explain the assumptions on which this calculation is based?
“I’ve taken the example of a household buying their main home with a deposit equivalent to 20% of the price. The calculation includes, in particular, the interest on the mortgage – based on a variable rate of 3.07% or a fixed rate of 3.54% – as well as an estimate of service charges, maintenance costs, taxes and insurance. The purchase costs are spread over a period of ten years. The rental figures used as benchmarks are taken mainly from adverts published on atHome and Immotop. However, the result should be regarded as a rough guide, as some of the data is self-reported or has had to be extrapolated.
The comparison involves adding up all the costs incurred by the owner and then comparing them with the rent they would have paid had they remained a tenant.
In practical terms, how do you compare the cost of buying with that of renting?
‘A tenant paying rent does not, in practice, have to finance the purchase or upkeep of the property. The landlord, on the other hand, is repaying a mortgage and must cover the interest, service charges, insurance, taxes, maintenance and the costs associated with the purchase. The comparison therefore involves adding up all the costs borne by the owner and then comparing them with the rent they would have had to pay had they remained a tenant.
Why do registration fees play such an important role in your thinking?
“Because they are a cost that is lost for good! They do not contribute to building up assets and are not recouped when the property is sold. In some countries, they are so high that a homeowner has to keep their property for around ten years for the purchase to become genuinely worthwhile compared to renting. In Brussels, for example, they can amount to 12.5% of the purchase price.
Thanks to the Bëllegen Akt, it is less of a financial burden to resell.
In what way does the Bëllegen Akt make a purchase more ‘reversible’ in Luxembourg?
“The Bëllegen Akt significantly reduces, or even waives, the registration fees payable when purchasing a main residence. The allowance can be up to €45,000 per buyer, or €90,000 for a couple. This means that a household selling on after a few years does not have to recoup, through a potential rise in house prices, a substantial sum paid at the time of purchase. The purchase is therefore more ‘reversible’: thanks to this benefit, it is financially less of a burden to change one’s plans and sell the property on.
Is it really possible to buy a property and sell it on quickly without losing that benefit?
“The benefits of the Bëllegen Akt are subject to certain conditions. In particular, the purchaser must use the property as their main residence and remain there for at least two years. Once this commitment has been met, they may resell the property without having to pay substantial registration fees. This may, in particular, reassure an expatriate who is unsure whether they will remain in Luxembourg in the long term.
Doesn’t this state aid mean that taxpayers are bearing part of the risk taken on by the buyers?
“To a certain extent, yes, as it involves revenue that the State is foregoing. But this policy also makes it easier to get onto the property ladder, particularly for first-time buyers. It reduces an initial outlay that can amount to tens of thousands of euros, without directly increasing the value of the property. Whether this support also props up property prices, however, is a separate matter for research.
Does your calculation take into account a possible fall in house prices, estate agents’ fees or major renovation costs?
“Not in great detail, I admit. A budget equivalent to around 1 per cent of the property’s value is set aside for maintenance and service charges, but the model does not specifically factor in estate agent’s fees, major renovations, differences in energy performance or any potential loss in value upon resale. Its aim is to compare major European cities using common criteria, not to provide an exact financial breakdown of each purchase.
Can Luxembourg really be compared with Paris, London, Berlin or Brussels?
“The comparison has its limitations, as wages, taxation, credit conditions and property markets differ significantly. Each city must therefore be considered within the economic context of its own country. The main value of the study lies in highlighting a distinctive feature of Luxembourg: despite very high prices, the costs of getting onto the property ladder can be significantly lower than elsewhere thanks to the Bëllegen Akt.
If a one-percentage-point rise in interest rates is enough to alter the result, isn’t the conclusion rather tenuous?
“Luxembourg is effectively at a tipping point: a change in interest rates, prices or rents could tip the balance in favour of buying or renting. A rise of one percentage point – or 100 basis points – makes borrowing significantly more expensive and reduces households’ purchasing power. However, it does not negate the advantage of low stamp duty.
There is a gap between households’ desire to buy a home and their actual ability to finance such a purchase.
Doesn’t this analysis mainly apply to households that are already well-off, who are able to make a 20 per cent deposit?
“Yes, that is a significant limitation of the model. Saying that buying can be as financially attractive as renting does not mean that everyone can afford to buy. You still need to have a sufficient deposit and be able to secure a mortgage. There is therefore a gap between the desire to buy a home and households’ actual ability to finance such a purchase.
Is a low entry cost really worth it if it becomes difficult to resell?
“It obviously does not guarantee that a property will find a buyer quickly. But it makes it easier for the seller to accept a price reduction, as they do not, on top of that, have to recoup the substantial registration fees paid at the time of purchase. This limits the initial loss, even in a less buoyant market.
Across Europe, buying is no longer automatically more cost-effective than renting, but Luxembourg stands out…
Doesn’t your study ultimately show that buying property in Luxembourg remains an attractive prospect because of the tax system rather than the property market itself?
“To a large extent, yes. In the past, buying was often a no-brainer because prices were rising sharply and offered the prospect of significant capital gains. That is no longer the case today: there is no guarantee of an annual increase of 10% or 15%. If buying remains competitive compared to renting in Luxembourg, it is mainly because a government policy, through the Bëllegen Akt, significantly reduces the initial cost. This does not mean that you should necessarily buy, but that buying a property here is less of a permanent commitment than in many other European cities.
So, what should we ultimately take away from this personal analysis?
“Across Europe, buying is no longer automatically more advantageous than renting, but Luxembourg stands out thanks to the Bëllegen Akt, which significantly reduces the upfront costs of purchasing a main residence. Buying therefore becomes more ‘reversible’ here, whereas in neighbouring countries it often takes nearly a decade to recoup the costs. This advantage is therefore more a matter of public policy than of the market, but it still depends on interest rates and does not apply to investors.”
