BIL IMMO Index - 2nd quarter 2016

Given the significant evolution of the housing market in Luxembourg, Banque Internationale à Luxembourg (BIL) has created an IMMO Index that will deliver precise analysis of this market. While a lot of comments have been made with respect to the evolution of prices, until now there has been no economic indicator reflecting the trend in the Luxembourg housing market based on economic indicators. BIL, in collaboration with PwC Luxembourg, has selected the key data and relevant indicators to develop the BIL IMMO INDEX, a synthetic indicator of the market over the last 35 years.

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The BIL IMMO Index as of the second quarter of 2016.

Source: PwC Market Research Centre

In the 4th quarter of 2015, the BIL IMMO index stood at 0.80 mainly as a result of the limited number of building permits issued and the effect of a legislative change on VAT. Conversely, 2016 has been marked by a strong rebound in the index. At mid-year, the index stood at +1.44 due to the following:

  • Real estate prices continued to rise in the first half of 2016, with a more marked increase in the advertised price of apartments than houses. The price of housing / income ratio has continued to rise due to an increase in house prices of 5.6% between Q2 2015 and Q2 2016.
  • The indicator used for rents rose moderately-around 0.4% year-on-year. This slight increase, as well as the continuing rise in advertised real estate prices, is driving up the housing/rent price ratio, which accelerated sharply during the first half of the year compared to 2015.

With very slight negative inflation (-0.04%) between mid-2015 and mid-2016, real price appreciation is strong and is being only partly absorbed by the favorable economic environment (+1.8% increase in GDP between Q2 2015 and Q2 2016). This is pushing our price to housing/consumer price index upwards.

  • A sustained increase in construction activity compared to overall economic activity (+ 7.2% for value added in construction), coupled with a very strong increase in the construction confidence indicator from July 2015 to June 2016 have contributed to the upswing.
  • Another factor contributing to the boost is a relatively big increase (+6.9%) in the volume of loans in the residential sector during H2 2016 compared to that of overall economic activity. This pushed our mortgage / GDP ratio upwards.
  • Finally, the index has rebounded sharply due to the large number of building permits issued during the first half of the year: 2,471, compared to 1,827 permits issued during the same period in 2015.

Overall, the market has recorded a certain “overheating”, but an improvement in supply factors, such as the increase in building permits, could stem the increase in advertised real estate prices in the second half of 2016, which would help to bring the BIL IMMO INDEX closer to balance.

Regional Analysis

The lack of regional data does not permit the calculation of an index by region, as regional analysis is based on cross-analysis of the following variables:

  • Demographics: population and demographic growth
  • Prices advertised for the sale of houses and apartments
  • Price advertised for rental homes and apartments

The regional analysis below is based on population data as of 1 January 2016 and the prices announced up to Q2 2016, as well as on recent developments. Price dynamics in each region are compared with national dynamics, and are crossed with demographic change. Risk levels are weighted on a scale of 1 to 5; the interpretation is as follows:

  • Level 1: negligible risk of contraction in short-term price
  • Level 2: low risk of contraction in short-term price
  • Level 3: moderate risk of contraction in prices
  • Level 4: average risk of contraction in prices
  • Level 5: risk sustained contraction of prices

On the proposed scale, no region is currently estimated at a 4 or 5 risk of contraction in prices. contraction risk. The risks are negligible to moderate.

Please hover over the map to view our BIL IMMO Index analysis per region

The sources used are STATEC for demographics and the Observatory of Housing for the prices advertised for sale and to rent. Other elements such as regional economic dynamism and the number of completed residential buildings can be considered according to the availability of relevant data.

This data should be considered with caution since prices for sale and rent are advertised prices. In addition, the real estate market in Luxembourg reveals significant variations from one quarter to the next.

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Dariush Yazdani

Grégory Weber

Xavier Domalain