Falling demand, a weak economy, bubble warnings – Belgium has it all. And yet house prices continue to rise, albeit modestly, which might be due to the fact that housing supply is declining again.
During the year to Q3 2017, the nationwide average price of regular houses in Belgium rose by 3.45% (1.54% inflation-adjusted) to €224,857 (US$269,392), according to the Statistics Belgium. There was even a spike in prices during the year, with annual house price rises of 6.27% in Q2 2017, 6.81% in Q1 2017, 5.69% in Q4 2016, but only 2.23% in Q3 2016.
Villa prices increased 3.99% (2.07% inflation-adjusted) y-o-y in Q3 2017. Apartment prices rose by 5.97% (4.01% inflation-adjusted) during the year to Q3 2017, the biggest increase since Q4 2015.
During the latest quarter, regular house prices rose by 1.3% q-o-q in Q3 2017 (1.1% inflation-adjusted), while apartment prices increased 3.3% q-o-q in Q3 2017 (3.1% inflation-adjusted).
In Q3 2017:
- In Brussels-Capital region, house prices rose by 3.47% y-o-y (1.56% inflation-adjusted) to an average of €429,627 (US$514,719). During the latest quarter, house prices increased 5.1% (4.9% inflation-adjusted).
- In the Flemish region (Flanders), prices of houses increased 1.71% y-o-y (-0.18% inflation-adjusted) to an average of €236,189 (US$282,969). Quarter-on-quarter, house prices rose by 1.5% (1.3% inflation-adjusted).
- In the Walloon region (Wallonia), house prices rose by a meager 0.1% (-1.75% inflation-adjusted) to an average of €163,348 (US$195,700). Quarter-on-quarter, house prices rose by 2.8% (2.7% inflation-adjusted).
Demand is now falling.
Total regular house transaction numbers fell by 7.6% during the first three quarters of 2017, according to Statistics Belgium, while transactions by value fell 2.6%.
Residential construction is declining. During the first seven months of 2017, the number of dwelling permits fell by a huge 17% y-o-y to 28,231, and residential building permits issued also declined by 19.7% to 12,104 over the same period, according to the National Bank of Belgium (NBB).
During Belgium’s housing boom (2000-Q3 2008), nationwide house prices soared by 129% (86% inflation-adjusted). Since the crisis, house prices have followed the economy. When the economy was strong, house-prices rose. When the economy was weak, house prices stagnated. The Belgian economy continues to disappoint. Then when the economy emerged from recession in 2011, the housing market bounced back strongly with Brussels house prices surging by 9.58% (5.7% inflation-adjusted). House prices in the whole country have risen only marginally since then, by 1.12% in 2012, 1.13% in 2013, 0.96% in 2014, 1.52% in 2015 and 2.5% in 2016.
In 2016, the economy grew by just 1.2%, a slowdown from 1.5% in 2015 and 1.6% in 2014. The economy is projected to expand by 1.7% this year and by 1.8% in 2018, according to the European Commission.
There are no foreign ownership restrictions in acquiring Belgian property.
Regional house price variations
Belgium is divided into three regions:
- the Flemish Region that occupies the northern half with Dutch-speaking communities;
- the Walloon Region which occupies the southern-half and is made-up largely of French-speaking communities, with a small German-speaking community in the south-east; and
- Brussels, the administrative capital region, an officially tri-lingual city inside the Flemish region.
Each region and community has a separate parliament and executive administration. Power has been increasingly devolved. There is also a persisting ethnic conflict, and the political union has come under rising threat.
Property prices in Belgium’s three regions move in the same price cycle, but the capital has registered much the highest price increases. Prices in Brussels surged almost 200% (140% in real terms) from 1998 to 2008, much more than in the two other regions (143% for the Flemish region and 116% in Walloon), according to Statistics Belgium.
The drivers of Belgium’s house price boom were:
- rapid mortgage market expansion, due to low interest rates and increased competition between banks; and
- relatively strong economic and wage growth.
When these conditions were reversed with the global credit crunch, house price rises slowed.
Is Belgian housing overvalued? Probably yes.
There is general agreement that the housing market slowdown has been enough to bring house prices back to “normal” levels. That begs the question, what is normal?
There are many different opinions, but research generally suggests that Belgian house prices are overvalued. The Belgian Federal Institute of National Accounts suggests that Belgian house prices are overvalued by about 9%. However research by the Organisation for Economic Co-operation and Development (OECD) has suggested that Belgium’s housing market is overvalued by as much as 50%, because income has not risen as quickly as house prices. Deutsche Bank says that Belgian homes remain 53% overvalued, with house prices still 51% higher than the historical average, relative to income. A 2017 study by Moody’s Investors Service argues that Belgium is the second most overvalued housing market among the 20 advanced economies included in the survey, next to Norway.
In contrast the IMF, in a press release of March 2016, said that its analysis “does not suggest a major overvaluation, as past price trends were broadly in line with borrowing cost, demographic and income developments”.
The IMF´s 2015 report draws a contrast between ´crude measures´ (which suggest significant overvaluation) and a more sophisticated analysis. Crude measures, based on historical price-to-income (PTI) and price-to-rent (PRR) ratios, suggest a 30% to 35% overvaluation (calculated over the 1993-2013 period) and a 47% to 58% overvaluation (calculated over the 1980-2013 period). However when underlying drivers of housing demand and supply are considered, the overvaluation was only around 3.6% or 4.2% (overvaluation without private credit) in 2013.
Residential construction falling
During the first seven months of 2017, dwelling permits fell by 17% y-o-y to 28,231 and residential building permits issued also declined by 19.7% to 12,104. However these fluctuations seem normal: dwelling permits rose by 11.7% in 2014, only to decline by 15.9% in 2015, and to increase again by 11.7% in 2016, according to the National Bank of Belgium (NBB).
Housing demand falling
Demand for all property types is now falling sharply. During the first three quarters of 2017:
- Houses: the number of transactions fell by 7.6% to 40,541 units from the same period the preceding year, according to Statistics Belgium (the value of house purchases fell 2.6%).
- Villas and bungalows: the number of transactions fell by 4.3% y-o-y to 12,127 units (the value of transactions rose by 0.3%).
- Apartments and flats: the number of transactions dropped 8.3% to 25,706 units (the value of apartment transactions fell by 5.6%).
Record low mortgage rates
The average interest rate on housing loans fell to a record low of 2.28% in October 2017, down from 2.48% in October 2016 and 2.85% in October 2015, according to the European Central Bank (ECB).
In October 2017:
- Up to 1 year maturity: 2.3%, down from 2.54% a year earlier and 2.74% two years ago
- Over 1 and up to 5 years maturity: 2.11%, down from 2.36% a year earlier and 2.78% two years ago
- Over 5 years maturity: 2.29%, down from 2.48% a year earlier and 2.85% two years ago
From being largely stable from 2012 to 2014, mortgages rates have been falling again recently, after the ECB cut the key rate to zero in March 2016.
Mortgage market continues to expand strongly
In November 2017, outstanding housing loans rose by 5.8% y-o-y, to €150.38 billion (US$180.16 billion). Over the past five years housing loans have soared. There were increases of 9.2% in 2016, 11.7% in 2015, 19.9% in 2014, 11.2% in 2013 and 6.5% in 2012, according to the ECB.
Mortgage lending has been strongly driven by loan refinancing, “with the large volumes of ‘new’ loan production being offset by the historically high levels of prepayments observed throughout the market”, according to Fitch Ratings.
The Belgian mortgage market is dominated by four major private financial conglomerates: Fortis Dexia, KBC, and ING Belgium. Intense competition has led to low fees and charges, and more mortgage options.
Moderate rental yields, subdued rental market.
In Brussels, rental yields on apartments range from 4.87% to 5.37%, according to a Global Property Guide research. Smaller apartments of around 50 sq. m. and 75 sq. m. have higher yields at 5.06% and 5.37%, respectively. Larger apartments of around 120 sq. m. have lower yields at 4.87%.
The rental market is significant, at about 30% of the housing stock (23% in the private sector, 7% in social housing); but this is falling, and is down from 38% in 1980 and 33% in 1990. The rental market has been subdued for a number of years because of rent controls (see Landlord and Tenant section). However, 60% of households in Brussels are renters, a fact partly encouraged by Belgium’s unusually high buy/sell costs.
Economic growth disappointing
In Q3 2017, economic growth stood at 1.7%, slightly up from the previous quarter’s 1.5% growth, but lower than the EU-28’s average growth of 2.6% in Q3 2017. The Belgian economy grew by just 1.2% in 2016, after growth of 1.5% in 2015 and 1.6% in 2014, according to the NBB.
The economy is projected to expand by 1.7% this year and by 1.8% in 2018, according to the European Commission.
From 1997 to 2007, the country enjoyed healthy economic growth of about 2.5% per year. But since the crisis, growth has been weak. GDP growth was 0.7% in 2008, -2.3% in 2009, 2.7% in 2010, 1.8% in 2011, 0.2% in 2012, and -0.1% in 2013, mainly due to the adverse impact of the eurozone debt crisis, according to Belgostat.
In October 2017, the country’s seasonally adjusted unemployment rate was 6.9%, down from 7.2% the previous year, according to the NBB.
Inflation was around 2.1% in December 2017, slightly up from 2% a year earlier, based on the figures from the NBB.
Belgium’s budget deficit was 2.6% of GDP in 2016. The deficit is expected to decline to 1.5% of GDP this year, according to the European Commission.
Belgium’s gross national debt was equivalent to about 107% of GDP in 2016, the highest level since 2002. The public debt is expected to fall to 103.8% of GDP this year.
Earlier last year, Belgium was shocked by terrorist attacks in Brussels. In March 22, 2016, three coordinated nail bombings were reported, two at Brussels Airport in Zaventem and another at the Maalbeek metro station. 32 victims were killed plus 3 suicide bombers, as well as around 300 people injured.
The act of terrorism, the deadliest in Belgium’s history, was claimed by the Islamic State of Iraq and the Levant (ISIL). To avoid any similar incident in the future, Belgian authorities have been conducting massive anti-terrorists raids in recent months, particularly in and around Brussel’s Molenbeek district, which was dubbed as Europe’s jihadi capital.