Interview with Serge Uschkaloff, Co-Founder of IMMOTOP.LU

To gain a comprehensive understanding of the current situation in the Luxembourgish real estate market, we invited Serge Uschkaloff to share his insights. Explore this article to discover the perspectives offered by this seasoned real estate expert.

Q: You were involved in launching IMMOTOP.LU in 2007, during an uncertain economic period. Do you think what is happening today is similar to what occurred 16 years ago?

While I can draw some parallels between the subprime crisis and the current situation, these two crises are fundamentally different. The subprime crisis was linked to excessive individual debt in the USA, while the current crisis stems from several factors whose combination proved fatal, impacting various sectors, including energy, construction, and real estate. The current crisis is systemic.

The subprime crisis erupted at a time when the Internet was gaining power, and the market needed a boost to accelerate its transition to digital. Real estate agencies showed interest in real estate platforms, replacing paper and offline supports. Convincing them to adopt our concept was relatively easy, given the booming projects related to the Internet. Today, artificial intelligence sparks interest in the portal industry, potentially completely changing the rules of the game.

Regarding real estate prices, Luxembourg has been spared a significant drop and experienced a marginal correction. In contrast, Southern European countries saw market declines of over 60% depending on geographical areas.

Currently, the situation is deteriorating for Luxembourg, as our small country has already lost over 30% of market value in terms of prices compared to the peak, making it the leader in decline within the European Union.

Q: What do you think is the origin of the current situation?

The crisis the real estate market is undergoing is unprecedented since the end of World War II. The price curve peaked in the last quarter of 2021. After a rapid rise in interest rates, prices initially stagnated, then began to decline inversely to the increase. Between 2019 and 2021, prices rose by over 30%, an astounding increase but also a sign of a bubble. The abrupt quadrupling of interest rates was a surprise too many individuals and professionals. I believe the main cause lies in the impossibility of predicting such things as rampant inflation and a reversal of the interest rate policy. The price increase was indexed to the low rate approaching 1%, and financing was easily accessible. However, when rates increased, financing access was cut, and demand subsequently dropped. All of this is a chain of circumstances leading to the current real estate crisis.

Q: What about future trends?

Prices will reach their lowest level around summer and should stabilize in the second half of 2024. After that, several scenarios could unfold depending on major factors such as economic, political, and even geopolitical factors. The best-case scenario is predicting a steady single-digit increase for 5 to 6 years starting from 2025. Thus, the loss of value would be absorbed, and prices would return to their late 2021 levels. However, it all depends on the European monetary policy and the purchasing power of potential buyers.

Q: In your opinion, what would be the worst-case scenario?

The worst-case scenario would be that, due to a shortage of available housing in the market and with an influx of expatriates, real estate prices rise again in double digits, as we experienced in the post-Covid period. Certainly, with the current rate, this seems unlikely, but assuming the rate would decrease, one could expect such a scenario to occur. This will also depend on Luxembourg's attractiveness as a destination for expatriates.

Q: Could we assume that prices will drop even further?

So far, we have observed that the actual sale price practiced in the market currently corresponds to the price practiced in 2019-2020. In existing real estate, this loss corresponds to 30-35% and varies depending on the type of property, its location, and its condition. New properties show a minimal loss of 20% compared to the late 2021 peak.

This situation reflects the need to adapt the monthly repayment to the purchasing power of buyers, and this drastic correction is perfectly in negative correlation with the rise in interest rates.

Q: Could prices drop even further?

I would say yes; in the past, such phenomena have occurred in other countries, and Spain, for example, has not yet recovered the lost value from the 2007-2008 subprime financial crisis. This hypothesis would be more likely to occur if interest rates continue to rise.

Q: What advice would you give to buyers and sellers in 2024?

Optimistically, I would say it's the ideal time to buy your primary residence. Monthly payments are now aligned, and one can again afford to become a homeowner under certain conditions. If you are currently a tenant and have decided to stay in Luxembourg for a good while, then go for it! If you already own your property and it meets your current needs, wait.

On the other hand, if your family is expanding, or if you simply need more space, this moment may be ideal for such a transfer. And if, for any reason, you absolutely want to sell your property this year, seek assistance from a professional agent!

Q: Is investing in real estate a good idea in 2024?

Yes, indeed, and there will be two types of opportunities for liquid investors. Firstly, they can hunt for properties to renovate at a lower price and, once renovated, put them up for rent. The constraints involve planning good insulation to improve the property's energy class. Secondly, investors can take advantage of government incentives and invest in properties under construction, which could revive the construction market and offset the effects of the crisis. Luxembourg's rental stock is so small that it needs to double in the next 2-3 years. With a bit of luck, rents would stabilize and become more affordable for households.