A clear message to (large) private landlords

The goal of rapidly revitalising sales in the new-build (VEFA) sector is addressed by a package of tax measures limited to 2024. These measures are particularly favourable for individuals with large property portfolios. Nexvia, the real estate agency, explains

The government's tax measures to support the residential construction sector can only be applauded. A situation of emergency calls for an emergency response! But limited in time and with the objective (admittedly less communicated) of quickly mobilising major investors or Luxembourg property inheritors.

Get those who are already landlords to make the first move

Private investors in property are encouraged to renew their stock. They can do this by selling their old properties without being taxed on their capital gain (because capital gain is immunised if you buy properties with an A+ energy performance rating, otherwise it is taxed at a quarter of the rate) and by reinvesting their funds in housing under construction to benefit from significant tax breaks (accelerated depreciation of 6% on the construction share for 6 years, generally corresponding to 60% of the purchase price of a new property). See the Nexvia tax smart card here.

The target of these measures is clearly large investors, as these tax breaks apply up to a total acquisition value of about 7 million euros, while the accelerated depreciation scheme is normally limited to 2 acquisitions in the lifetime of private investors for all deliveries after January 1, 2023! Therefore, the tax window is short and likely to make them move very quickly.

They, like all private individuals, can value their property online thanks to transaction data collected in real-time by Nexvia and its banking partners.

Even if these measures may seem to favour the (already) better off, relying on these multiple owners is a win-win situation. It's a question of mobilising those who can have a real impact on saving the construction sector, and also continuing to build the number of new dwellings a year that the Luxembourg economy needs.

Lastly, this will put older flats on the market for first-time buyers who are still prepared to buy as long as the sale value is within their means.

Encouraging first-time investors and those building up their portfolio

These tax measures are also advantageous for a first buy-to let investment by an individual (or additional investments). Based on our calculator, the absence of registration fees and the increase in accelerated depreciation in 2024 increases the net annual return on your investment from 4.9% to 7.2% (i.e. an additional 2.3%) over 6 years (assuming a gross return of 3.25%, a deposit of 100,000 euros, a loan at 3.65% and an annual increase in the value of the property of 2%, the expected long-term inflation). Calculate the difference between an investment in 2024 and 2025 here.

However, if this is to have the desired effect, it would be a good idea for developers to take into account the financial limits to which investors are still subject, and that some adjust their prices to make it easier to absorb their projects. The government is making a substantial effort. Developers willing to sell must do the same and accept the reality of the market. A market in which purchasing and investment capacities have adapted to the reality of borrowing rates.

If there is one final point that we feel still needs to be addressed, it would be to protect all buyers against the risk of bankruptcy by a developer. Off-plan buyers may be covered by a "completion guarantee", which in reality does not guarantee that the work will actually be completed, but may provide partial financial compensation, as explained (in French) by EuroCaution in the media last year.

However, these exceptional measures will not solve the fundamental problem of housing in Luxembourg: high prices due to complicated access to land for developers (both private and public).