Luxembourg’s real estate market has slowed down with the arrival of high interest rates, adding to the financial burden of already high prices. And although prices are on a downward trend, order books of companies in the sector are emptying, ministers said on Tuesday.

“We are in a succession of crises,” housing minister (déi Gréng) said. The covid-19 pandemic, supply chain disruption, the war in Ukraine, inflation and high interest rates have led to a “decline in the construction sector.”

Around 55,000 people work in construction, many at small and medium-sized entreprises, which are feeling the pinch of a lack of contracts, said minister for SMEs (DP) after a meeting with the Chamber of Skilled Trades and Crafts in the morning.

A government task force developed a 13-point plan to give the sector a boost, although not all measures are new or include concrete action points.

For example, the government pledged to keep public investment high, fulfilling previously made pledges by the public works administration to invest €934.2m in different projects, from administrative buildings to railway, and €201m in housing.

“Rock bottom”

Under the new proposals, the government wants to raise the ceiling to get parliamentary approval for construction projects from €40m to €60m. Currently, any project worth more than €40m requires the drafting of a law and vote in the Chamber of Deputies. This is slowing down injecting the sector with money, Delles said, especially as rising prices mean that limit is reached more quickly.

Players in the childcare and education sector will receive additional funds to build or refurbish infrastructure, such as daycare centres. Companies will receive more money to improve their energy efficiency--providing work for businesses carrying out insulation or solar panel installation, for example.

An extra €1.4m will be made available to help train staff in energy efficient construction and communes will get an additional €25m for energy friendly renovation of publicly owned buildings.

“The sector really is at rock bottom,” said economy minister (LSAP), adding that the outlook for the rest of this year and 2024 remained difficult.

Support for buyers

First-time buyers will receive a grant of €20,000 for the purchase of a home completed by the end of 2024. This comes in addition to the government previously for registration and transaction fees from €20,000 to €30,000.

Kox expects a law to provide additional support for buyers to pass in parliament before the October election. This includes increasing a state guarantee for real estate loans for households from €18,750 to €26,000 as well as raising an interest subsidy from €175,000 to €200,000 with an extra €20,000 per child for families, up to €280,000.

Under the same draft law pending in parliament, owners transforming a single-family home into two housing units--given the right health and safety precautions--will be eligible for a subsidy of up to €20,000 for projects completed by 2026.

The government--together with the employee and employer representatives of the tripartite--also previously promised raising a tax-exempt amount on mortgage interest from €2,000 to €3,000. 

Elsewhere, the ministers on Tuesday pledged to simplify procedures and continue raising more awareness for aid available to companies and households, such as the Klimabonus for energy friendly refurbishment.

Helping construction sector, not the market

Kox likened predicting the impact of the measures on the housing offer to reading tea leaves.

Although prices rose 9.6% last year overall, the final three months of 2022 saw a , according to data from statistics office Statec. Purchase prices in the last quarter of 2022 fell 1.4% compared to the preceeding three months of the year.

The number of sales--houses and flats combined--dropped 14.4% in 2022 compared to the year before, with the sales volume falling 10.8% at a value of €3.9bn.

Real estate platform athome.lu confirmed  in data published at the start of April, saying prices for the first quarter of 2023 were down 5.1% compared to the same time in 2022.

“It’s not primarily about doing something about prices,” Fayot said, adding that the market would continue evolving. “It’s primarily about supporting the sector.” The measures--whether new or simply reinforcing existing subsidies--would help cushion some of the blow but wouldn’t serve to completely absorb the problems facing the market, he said.

“It’s a sector we will very much need in future,” said Delles.