Click here to read the full paper including graphs: Belgium BTR Sector
Belgium is best known for its chocolate, beer and fries. However, the country is more than just a few Trappist beers. Belgium also holds the modern world record for the longest period of time without an official government. After 541 days, Belgium swore in a new government headed by Elio Di Rupo. Of course, Belgians made a whole celebration out of this, offering free beer and fries. On a more serious note, however, Belgium is often lauded for its high quality of life. Its housing market remains surprisingly vibrant with house prices continuing to rise. Residential construction is continuing at a brisk pace too, with the highest level of development seen in the modern era. In the last two years, the number of residential permits soared, with Belgium’s housing stock reaching 5.5 million by 2020 – an all-time record high. The number of transactions is also increasing, with YTD figures for houses and apartments up 5% nationwide. According to CBRE’s latest investors survey, Belgium’s residential sector witnessed the steepest rise in popularity across all property types in 2019. With Belgium’s residential market fast becoming institutionalised, investment volumes more than doubled in 2019, with €760 million of residential investment compared to €345 million in 2018. Institutional investors are attracted to the good demand/supply dynamics, stable long-term income profile and to the possibility of driving scale and diversifying existing portfolios.
GROWTH IN PRIVATE LETTING MARKET
Increasing values and investor interest in Belgium’s residential market show no signs of abating. Increased urbanisation, low interest rates, limited investment-grade assets and a growing diversity of residential offers are creating a window of opportunity for investments. In particular, institutional interest in the underdeveloped private letting market is growing, as attitudes are shifting away from a home-owning mindset. Indeed, housing pressure in big cities has stretched affordability and the share of owner-occupiers versus tenants in the larger metropolitan areas has shifted to 60% tenants-40% owner-occupiers, making the residential market increasingly compelling for investors. The covid-19 pandemic will accelerate this trend, as one of the lessons learnt from this crisis is the necessity of having a suitable place to live.
Last year, Belgium’s population increased 0.4% to 11.5 million. While Brussels and Flanders continue to grow at a decent pace, Wallonia is lagging at just 0.3% growth y/y. In Brussels, households are growing in size, driven primarily by cost and family concerns. Flanders and Wallonia, however, follow the Belgian trend of smaller households, as the number of singles living on their own continues to increase. That means that the change in number of households is smaller than population growth in Brussels, but faster than population growth in Flanders and Wallonia. This trend explains the rapid growth for residential units in Flanders, with Antwerp an excellent case in point (see case study p.2). Belgium will continue to see growth in single households going forward, while apartment buildings are likely to continue to gain market share over houses.
Of particular relevance to the Belgium market is that the redevelopment potential is huge. According to JLL, 73% of the housing stock in Belgium was built before 1981. In the Flemish region, 68% of the stock was built prior 1981, whilst in the Walloon region the proportion of buildings older than 40 years is 79%. However, in Brussels, the proportion of buildings built before 1981 is more than 93%, suggesting that this region in particular holds a high redevelopment potential. In terms of pricing, median prices for apartments have increased at a pace well in excess of inflation in the past few years. At the start of 2020, the median price for an apartment in Belgium was €190,000, which corresponds to €2,375 per sq m at an average size of 80 sq m per apartment. Regional prices vary from €1,850 in the Walloon region to €2,625 per sq m in Brussels. The house price index published by Satbel shows a steady increase over time across all regions.
IS THE BELGIAN HOUSING MARKET OVERVALUED?
2018 and 2019 were very strong years for the Belgian housing market. Compared to 2017, transaction prices increased on average by 4% and the number of transactions was 5% higher. The number of issued building permits even surged by a stunning 36%. Historically, low interest rates and the resulting high borrowing capacity continued to drive the market, supported by the overall strong macro-economic conditions. Lower transfer taxes („registration duties”) in the three regions also had a positive impact. According to a recent report by JLL on Urban Living, the highest rate of urbanisation in Europe is in Belgium (98%). The growing population (partly due to rapid immigration), high urbanisation level, as well as the decreasing family size are all pushing demand for residential units and prices further. As the population of Brussels is predicted to increase by 12.5% by 2030, this will likely lead to a further increase in property prices. Over the last 10 years, house prices have risen by 22%, considerably higher than the European country average of 9%.
Belgian residential real estate – with its strong fundamentals – has become a very popular investment class. This is changing the market dynamic, as the Belgian market is traditionally very owner-occupier oriented. The full implications for the future remain to be seen. One thing is clear; there is a general agreement that the housing market slowdown brought about by the latest coronavirus crisis has brought house prices back to ‘normal’ levels. Indeed, many market experts would argue that Belgian house prices were overvalued. The Belgian Federal Institute of National Accounts suggests that Belgian house prices are overvalued by about 9%, as income have not risen as quickly as house prices. Whilst to date the residential market has been hindered by a general affinity for home ownership and policies supporting ownership over renting, the recent institutionalisation of the market has changed things considerably, strengthening the rental market and professionalising asset management. This makes built-to-rent an extremely compelling proposition in today’s market.