The Belgian housing market is felt by many analysts to be overvalued. But Belgium’s house prices continue to rise, amidst strong demand and slowing residential construction activity.
During the year to Q3 2019, the nationwide house price index in Belgium rose by 3.93% (2.73% inflation-adjusted), after rising2.54% in the equivalent period last year, according to the Statistics Belgium. Quarter-on-quarter, the index increased 2.92% in Q3 2019 (3.03% inflation-adjusted).
Existing dwelling prices increased 4.37% y-o-y in Q3 2019 (3.17% inflation-adjusted). New dwelling prices rose by 2.09% over the same period (0.92% inflation-adjusted).
Belgium´s housing market remains vibrant. The number of transactions for houses rose by 3.6% y-o-y during the first three quarters of 2019, according to Statistics Belgium. Likewise, apartment transactions increased 8.5% over the same period.
Despite rising demand, residential construction activity is slowing in Belgium. During the first eight months of 2019, the number of dwelling permits fell by almost 19% y-o-y to 36,126, and residential building permits issued also declined by 10.5% to 18,157, according to Statistics Belgium.
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.
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 rose slowly post-recession, by 1.12% in 2012, 1.13% in 2013, 0.96% in 2014, and 1.52% in 2015.
Since then the pace has quickened. House prices rose by 2.54% in 2016, 3.55% in 2017, and 2.52% in 2018, amidst improved economic growth.
Belgian house prices are projected to rise by about 3.2% in 2019 and by another 2% in 2020, according to ING Bank.
However in 2019, the Belgian economy was estimated to have expanded by only 1.3%, the lowest growth since 2013, based on the latest projections released by the National Bank of Belgium (NBB). The European Commission is even more pessimistic, projecting a minuscule real GDP growth of 1.1% for the country in 2019, amidst a slowing global economy. But this remains at par with Belgium’s average economic growth of 1% annually from 2008 to 2018.
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
- economic and wage growth.
When these conditions were reversed with the global credit crunch, house price rises slowed sharply - particularly in Brussels, where prices had previously risen so fast. From 2009 to 2018, house prices in Brussels increased by only 17.8% (and actually fell by 1.1% in real terms).
In the Flemish and Walloon regions, prices rose 2009-2018 by 36.7% (14.8% in real terms) and 20.9% (1.5% in real terms), respectively.
But house price growth has noticeably strengthened this year. In Q3 2019:
- In Brussels-Capital region, house prices rose by 5.46% y-o-y (4.25% inflation-adjusted) in Q3 2019, to an average of €425,000 (US$476,085). House prices increased strongly by 6.25% (6.37% inflation-adjusted) q-o-q in Q3 2019.
- In the Flemish region (Flanders), prices of houses increased 2.32% y-o-y (1.14% inflation-adjusted) to an average of €265,000 (US$296,853). Quarter-on-quarter, house prices rose by 3.92% (4.04% inflation-adjusted).
- In the Walloon region (Wallonia), house prices rose by 6.06% y-o-y (4.84% inflation-adjusted) in Q3 2019, to an average of €175,000 (US$196,035). Quarter-on-quarter, house prices rose by 6.06% (6.18% inflation-adjusted).
Is the Belgian housing overvalued? Probably yes.
There is general agreement that the housing market slowdown has brought 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%. Recently, the NBB noted that house prices are about 6.5% overvalued and warned about rising household debt induced by mortgage loans.
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 incomes have not risen as quickly as house prices. Deutsche Bank says that Belgian homes are 53% overvalued, with house prices still 51% higher than the historical average, relative to income. The Economist’s interactive graph of global cities house price index showed that Brussels’ house prices were 65% higher than they should be, based on median household incomes.
These claims were supported by Moody’s Investors Service, which argues that Belgium is the second most overvalued housing market among the 20 advanced economies included in the survey, next to Norway.
Residential construction slowing
The number of dwelling permits fell by 19% y-o-y to 36,126 during the first eight months of 2019, and residential building permits issued also dropped by 10.5% to 18,157, according to Statistics Belgium. Some fluctuation is of course normal: dwelling permits rose by a huge 24.5% in 2018, fell by 1.2%in 2o17, after rising by 10.4% in 2016.
- In Flemish region, dwelling permits plunged 21.2% to 27,994 units in the first eight months of 2019 from a year earlier while residential building permits fell by 12.9% to 13,590 over the same period.
- In Brussels-Capital region, dwelling permits fell by a huge 42.6% to 612 in the first eight months of 2019 from a year earlier and residential building permits dropped 18.7% to just 87 over the same period.
- In the Walloon region, dwelling permits fell by 4.8% y-o-y to 7,518 in the first eight months of 2019 while residential building permits dropped 2% to 4,479.
Housing demand remains strong
During the first three quarters of 2019, regular house transactions in Belgium rose by 3.6% to 70,338 units from a year earlier and apartment transactions increased 8.5% to 29,226 units, according to Statistics Belgium.
- In the Flemish region, house transactions rose by 5.7% y-o-y to 45,031 units in the first three quarters of 2019. Apartment transactions also increased 12.4% to 18,090 units.
- In the Walloon region, sales transactions of regular houses were almost unchanged in the first three quarters of 2019, at 23,560 units. Apartment transactions rose slightly by 1.7% to 4,256 units.
- In Brussels-Capital region, regular house transactions increased by 2.6% y-o-y to 1,747 units in Q1 to Q3 2019. Apartment transactions rose by 3.3% to 6,880 units.
The increase in residential property transactions was partly attributed to the expected abolition in Flanders of the “woonbonus” rules in 2020, a system of tax deductions for people with a mortgage. This drove people towards purchasing real estate in the second half of 2019.
Record low mortgage rates
The average interest rate on housing loans fell to a record low of 2.02% in October 2019, down from 2.16% in October 2018 and 2.28% in October 2017, according to the European Central Bank (ECB).
In October 2019:
- Up to 1 year maturity: 2.03%, down from 2.12% a year earlier and 2.3% two years ago
- Over 1 and up to 5 years maturity: 1.68%, down from 1.88% a year earlier and 2.12% two years ago
- Over 5 years maturity: 2.03%, down from 2.16% a year earlier and 2.28% two years ago
From being largely stable from 2012 to 2014, mortgages rates have been falling again in recent years, after the ECB cut the key rate to zero in March 2016 where it stayed since.
Belgian mortgage market continues to expand strongly
Housing loans have soared in recent years in Belgium. The mortgage market has expanded continuously in the past seven years – growing to almost 38% of GDP in 2019.There were increases of 8.9% in 2018, 5.9% in 2017, 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. In October 2019, outstanding housing loans rose by 6% y-o-y, to €173.16 billion (US$193.5 billion).
Belgium’s mortgage market is expected to remain resilient in the coming years, despite higher LTVs and longer loan maturities beyond the typical 20-year term, according to Fitch Ratings’ Global Housing and Mortgage Outlook – 2019.
The Belgian mortgage market is dominated by four major private financial conglomerates: BNP Paribas Fortis, KBC Bank, Belfius Bank, and ING Belgium, which accounted for almost two-thirds of the entire banking sector in 2018. Intense competition has led to low fees and charges, and more mortgage options.
Moderate rental yields, subdued rental market
Gross rental yields on apartments in Brussels range from around 4.56% to 5.53% in 2018, while yields on houses range from 4.46% to 5.01%, according to recent Global Property Guide rental yields research. Meanwhile, the difference between the yields on small properties, which tends to be higher, and those on larger properties, has shrunk.
The rental market is 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, 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 continues to disappoint
The Belgian economy was estimated to have expanded by 1.3% in 2019, the lowest growth since 2013, based on the latest projections released by the National Bank of Belgium (NBB). The European Commission is even more pessimistic, projecting a miniscule real GDP growth of 1.1% for the country in 2019, amidst slowing global economy. This was at par with Belgium’s average economic growth of 1% annually from 2008 to 2018.
“The growth of the global economy is declining, that of the eurozone is not doing well, and the outlook is clouded by the Brexit and the trade dispute between China and the United States,” said the Institute of Economic and Social Research (IRES) of UCLouvain. “Consumer confidence in Belgian companies has also deteriorated sharply since the beginning of the year.”
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 0.4% in 2008, -2% in 2009, 2.9% in 2010, 1.7% in 2011, 0.7% in 2012, and 0.5% in 2013, mainly due to the adverse impact of the eurozone debt crisis, according to the NBB.
In October 2019, the country’s seasonally adjusted unemployment rate was 5.6%, down from 5.8% in the previous year, according to the NBB.
Inflation slowed to just 0.8% in December 2019, down from 2.3% a year earlier, based on the figures from Statistics Belgium.
Belgium’s budget deficit stood at 0.7% of GDP in 2018 – a slight improvement from the previous year’s shortfall of 0.8% and the country’s best showing since posting a surplus of 0.1% of GDP in 2007. The deficit is expected to rise again to 1.7% of GDP this year and to 2.3% in 2020, according to the European Commission.
The country’s gross national debt was estimated to be equivalent to 99.5% of GDP in 2019, slightly down from 100% in 2018 and the lowest level in a decade.
- House price index – 3rd quarter of 2019 (Statistics Belgium):https://statbel.fgov.be/en/themes/housing/house-price-index#news
- European real estate: Housing expected to cool further (ING Bank): https://think.ing.com/articles/real-estate-expected-to-cool-further/#a7
- World Economic Outlook Database, October 2019 (International Monetary Fund): https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/weorept.aspx?
- MFI Interest Rate Statistics (European Central Bank): https://sdw.ecb.europa.eu/browseTable.do?org.apache.struts.taglib.html.
- Balance Sheet Items (European Central Bank): https://sdw.ecb.europa.eu/browseTable.do?org.apache.struts.taglib.html.
- Belgium’s banking sector: Facts & Figures (European Banking Federation): https://www.ebf.eu/belgium/
- Global Housing and Mortgage Outlook – 2019 (Fitch Ratings): https://www.lma.eu.com/application/files/4215/5066/7567/Global_Housing_and_Mortgage_Outlook_-_2019.pdf
- Yields in Brussels moderate (Global Property Guide): https://www.globalpropertyguide.com/Europe/Belgium/Rental-Yields
- Economic forecast for Belgium (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/belgium/economic-forecast-belgium_en
- Inflation increases for the first time since March and amounts to 0.76% (Statistics Belgium): https://statbel.fgov.be/en/themes/consumer-prices/consumer-price-index
- Building permits (Statistics Belgium): https://statbel.fgov.be/en/themes/housing/building-permits#figures