Why investing in your home is one of first investments to make?

Article updated in 2021

According to Statec, more than two thirds of Luxembourg residents own their homes. If this is not yet your case, here are five arguments to convince you that, beyond the pleasure of owning one’s home, investing in such is one of the first investments to be made.

Reason 1: Rental costs are significantly higher than current interest costs

Considering the mortgage interest deductions (and the interest subsidy if you are eligible), you can benefit today from a real cost of mortgage interest close to 1% on your entire repayment period via a fixed rate loan. On the other side, the annual rental costs represent between 3.5% and 5% of the property’s price. By purchasing your home, you save about 75% of your housing costs. Costs that are directly invested in the repayment of the property.

Reason 2: The only investment on which an individual can benefit from such a leverage effect

Since housing is a primary need, one of the missions of financial institutions is to facilitate access to housing and finance its acquisition. Buying your home often requires only 20% of the price of the property or less, if you have a comfortable income. The CSSF allows first-time buyers to fully finance their home, provided that they pay the related acquisition costs. For non first-time buyers, primary residences are regulated to a maximum loan of 90% of the property price.

The initial investment is therefore low compared to the advantages you will benefit from:

• a real cost of mortgage interest currently well below the rental costs, allowing you to use the difference for the repayment of the principal;
• a property you own and that offers a potential capital gain on its disposal

Reason 3: Transaction costs are limited

For first-time buyers, acquisition costs are generally very low. Indeed, registration fees are reduced to €100 (Bëllegen Akt) for any purchase up to €285 714 for a single person or €571 428 for a couple (instead of 7% of the price of the property, however applicable on the upper edges). It should be added to this the notary fees which are relatively limited on the transfer of ownership. For example, for a couple buying a property for €500 000, total transaction costs (including the financing costs) represent just over 1.2% of the price of the property! Click here to simulate your acquisition costs.

For first-time buyers, acquisition costs are generally very low.

Reason 4: Property taxes are low

In comparison with some neighbouring countries, property taxes are practically non-existent in Luxembourg. The annual property tax often amounts to less than €100 for an apartment. Being an owner does therefore not generate a significant tax pressure that might justify remaining a tenant.

Reason 5: The capital gain on the primary residence is tax-exempt

Whether it is to buy a new home in Luxembourg, to move to another country or to dispose of your own funds for another project, the potential capital gain realised on the sale of your property is non-taxable. Whatever the amount might be.

Conclusion: buying your home is a good investment… on the condition of:

• having the necessary down payment requested by your bank to access this investment;
• considering living a minimum of two years in your property, otherwise you must refund the registration fees you didn’t have to pay thanks to the Bëllegen Akt;
• having confidence in the fundamentals justifying the high price of real estate in Luxembourg;
• understanding the consequences of buying with leverage. Indeed, you must accept a potential risk of loss in the event of a negative evolution of property prices in Luxembourg.

Whatever your reasons for investing in real estate are, the last advice is to be accompanied by a professional capable of answering all your questions, including on finances and taxes.