Investing in Real Estate in Luxembourg: A Good Idea?

Real Estate in Luxembourg: An Investment with Great Potential

An encouraging economic outlook

The facts prove it: Luxembourg is resilient to crises. Little affected by the financial crash of 2008, it has already regained its pre-COVID crisis prosperity. As far as GDP is concerned, economists are forecasting an increase of 2 to 4% in the coming years.

The rise in prices also impacts real estate: market value has increased by an average of 4.9% per year since 2010, compared to 1.8% in the rest of the European Union (Eurostat figures).

However, economic vitality alone does not guarantee a profitable property investment. There must also be property and people to house. On this point, Luxembourg offers a particularity: the constant increase in its population.

Taking advantage of a booming property market

For several years now, Luxembourg has been attracting a qualified population, mainly hired by companies in the financial and new technology sectors. In addition to the 50% of foreigners living in Luxembourg, 197,000 workers cross the border every day. With a population that continues to grow (141 inhabitants/m2 in 1981 compared to 249 in 2022), the tension in the real estate market is really tangible.

Advantageous Conditions for Buying Your Home

A State that has made housing its priority 

To resolve the housing crisis, the State of Luxembourg has put in place the “Pacte Logement 2.0”, which has been in force since January 2021. It aims to support the development of affordable and sustainable housing for purchase or rental.

State aid for buying, building or renovating is more favourable to households that are buying their main residence. In order to benefit from this aid, you only have to live in the property concerned for at least two years. There is nothing to prevent you from living in the property for a relatively short period and then renting it out, or selling it to realize a tax-free capital gain if it is your main residence.

The tax benefits apply if you are domiciled in Luxembourg for tax purposes. They are restricted to the acquisition/renovation of a main residence:

○ Reduced VAT rate of 3% instead of 17% (max. €50,000) for construction and renovation works.

 ○ Very low property tax. It will be further reduced in 2026.

○ Abatement of €20,000 (doubled for a couple) on the registration and notary transcription fees, which amount to 7% of the price of the property.

○ Loan interest deductible up to €1,000 to €2,000/year depending on the composition of the household and the year of moving in.

○ You are buying a building under construction, renovation or completed, but not occupied: you will be able to deduct your loan origination fees and property tax from your tax return, provided you have paid them before the property is occupied.

Do You Want to Invest in Rental Property?

Will you have the capital to invest in rental property? Buying a house or flat at a good price, receiving comfortable rents and anticipating a substantial capital gain is the Holy Grail of any investor. But your return will depend on the purchase price and/or the amount of rent received, which are not very favourable in times of crisis. However, the indexation of rents to inflation and the high pressure of housing needs remain strong drivers to get a good return on your investment.

Conclusion: Should You Invest in Real Estate in Luxembourg?

Residential or rental property in Luxembourg is an interesting investment. However, beware: the market is very diverse (new/old, northern and southern regions). You will therefore need to take into account local specificities. In this respect, do not hesitate to ask for advice from a real estate agent who knows the area inside out!