The real estate market is coming to its senses after two years of madness. Economic reality is taking over in a context where there are many uncertainties. The evolution of prices is also becoming more complex with, in the future, increases which will mainly concern renovated and well-located properties.
The residential real estate market remains immersed in a period of uncertainty. Multiple price increases (sales, materials and energy) and soaring mortgage rates are causing the market to slow down. It remains to be seen how long this situation will last. Here is something to see more clearly.
The residential real estate market remains immersed in a period of uncertainty. Multiple price increases (sales, materials and energy) and soaring mortgage rates are causing the market to slow down. It remains to be seen how long this situation will last. Here is something to see more clearly. It was down in the first half (- 1.8%), according to the latest figures from notaries. The trend continued during the summer. However, this drop in the number of transactions must be put into perspective because it is compared to the year 2021, which was particularly explosive in this regard. The activity is in fact returning to pre-covid standards. “There is nothing to worry about this decrease, notes Renaud Grégoire, spokesperson for notaries. The year 2021 had experienced a great frenzy. The drop in activity is linked to the fact that there is a fewer amateurs. A phenomenon of expectation is taking shape, both on the part of buyers and sellers.” Uncertainty has appeared in the real estate dictionary in recent months. A word that was not really part of the habits and to which buyers must get used. “I don’t have a crystal ball but real estate activity should continue to decline between now and the end of the year”, continues Renaud Grégoire. Especially since according to Smartblock, which specializes in real estate data, the stock of old properties put up for sale in Belgium is on the rise. It increased by 7% in one year. And, in theory, an increasing stock means that the goods offered for sale no longer find enough buyers at that price. “Investors are the main barometer of real estate activity, notes Renaud Grégoire. However, they are very sensitive to rising mortgage rates. There are also some uncertainties around taxation and price trends. This contributes to a market downturn. According to ING, a price increase of 5% is expected in 2022. However, it will be lower than inflation (estimated at 9% for this year), which will make real price growth negative. “For 2023, we expect prices to stagnate,” said Wouter Thierie, economist at ING. “Indeed, rising mortgage interest rates and weakening economic growth will slow price growth. interest reduces household borrowing capacity, which will put downward pressure on house prices.It also reduces demand for real estate.On the other hand, we expect real disposable income to hold up well thanks to a strong job growth and automatic wage indexation supporting price growth.” But the real lesson in terms of price trends is the ever-increasing segmentation of these increases. In the future, only renovated and correctly located properties will still experience price increases. For the others, drops in value are expected. The unreasonable price increases observed during covid and after are behind us. Economic reality has taken over given the prevailing context. Still, if the increases subside, prices will not decrease. And the rates will not return for a long time to the level observed in 2021. “The market today is much healthier, launches Kim Ruysen. now, on average, you have to wait six to eight weeks to sell your property. People are no longer throwing themselves at just any house or apartment as before. Economic reality has caught up with them. With the rise in energy prices, the cost of raw materials and the explosion in the cost of renovation work, buyers now think twice before embarking on a project.” And Eric Verlinden, co-CEO of the real estate investment fund Goddard Loyd, added: “Today, prices are recovering their real value. This does not mean that they are falling. Just that they are returning to standards. which are more in line with reality”. The first signs of shortness of breath are in fact already appearing. According to Immotheker Finotheker’s interest rate barometer, mortgage rates rose from 1.4% in early February to 2.7% in mid-August for a 20-year loan. “We believe that mortgage rates have probably already peaked, believes Wouter Thierie, economist at ING. Indeed, residential mortgage rates are strongly correlated to Belgian long-term rates. during the first half of the year. But the peak seems to have already been passed, because the long-term rates on the Belgian debt have started to fall. Thus, on August 19, the 10-year rate on the Belgian debt stood at 1.8%, well below the peak of 2.4% reached in mid-June, but still above the level at the start of the year (0.2%), therefore we believe that mortgage rates will stabilize in the short term, but remain permanently above the levels observed in recent years. Prime mortgage rates are expected to be around 2.8-3% by the end of the year. It should be noted that, in theory, a rise in rates leads to a decrease in demand for housing, which will have the effect of curbing the growth of prices. High inflation will above all reflect the fact that real price growth will be negative. “On the other hand, it could push some investors even more to turn to real estate to save the day since if they leave their money in their account, it will practically lose 10% of its value”, says Aubry Lefebvre, CEO of Thomas & Piron Building. It has climbed at the same level as prices and location. “The value of well-renovated and well-located houses will increase further, while for the others, price reductions are expected, explains Kim Ruysen. renovation costs in their project. And this discount will only increase. We have clearly reached a ceiling in terms of prices for these properties.” The EPB is now in the top 3 purchase criteria, which will seriously upset the real estate market. This is linked to the uncertainties surrounding demand, the availability of materials, labor as well as the evolution of the prices of construction materials. Not to mention that permits are difficult to obtain – mainly in Brussels – and regularly subject to appeals to the Council of State. Some promoters therefore currently prefer to postpone the launch of their project rather than market it at a loss or reduce their margins. “Especially since the prices offered by developers have reached a ceiling in some cases,” says Kim Ruysen, CEO of the Trevi real estate network. Beyond that, they will no longer find buyers. well located is important, especially since there are few products. But the problem is that the prices offered are then astronomical. Promoters have to come to their senses and agree, for a certain period, to see their margins decrease.” It sends prospective buyers to the old market. This helps to promote well-renovated housing and, above all, to drive up prices in this market. “There is clearly a pendulum effect, notes Eric Verlinden. This influx of candidates on the old market will drive prices up and increase sustainability requirements. The park will therefore be renovated. But this will also contribute to have more tenants because fewer people will be able to buy a property. The construction of new housing is therefore necessary.” A first sign of slowdown was in any case observed in the construction price index for the month of June, but it is premature to speak of a ceiling. “We will have to wait for the July index, which will be published in mid-September, to see if a real stabilization is emerging or if it is just a simple addict, underlines Jean-Pierre Liebaert, expert within Embuild, the new name of the Construction Confederation. Some materials such as wood or steel are no longer increasing. On the other hand, others continue to progress. In the absence of new tensions, we can however think that we will witness to a stabilization of prices in the coming months. However, there is no guarantee that they will return to their previous levels.” And Eric Verlinden to add: “The increase in construction prices for almost a year will be absorbed gradually but will require a reduction in the surface areas marketed and a probable reduction in margins on the part of developers.” It seems well fitted this time and is in the boxes of Minister Van Peteghem, with in particular the taxation of real rents and capital gains in the line of sight. And, it’s rather rare to be underlined, it seems to have a chance of succeeding. “I don’t believe it, tempers Eric Verlinden for his part. Two years from the elections, the government will not be able to agree. Taxation on capital gains could possibly pass the ramp but that on income will never be accepted. Many Belgians have invested their savings in bricks, with the desire to have a supplementary pension. No politician will embark on such an adventure. I think that investors will emerge from the woods with more fervor as soon as the fiscal framework is defined.”