Last quarter, I wrote about the potential tipping point that was in sight for the property market. Sharply rising interest rates caused property values to plunge hard, with transaction volumes falling to levels seen only in the years following the credit crisis. To further curb sharply rising inflation, the ECB further raised interest rates to 4% until the end of September, before deciding not to raise rates further at the end of October. This follows the policy of the Federal Reserve in America, where interest rates were last raised in July 2023. With this, financial markets appear to be stabilising although possible interest rate hikes are still lurking should inflation pick up again. However, given the mild recessions that emerged in several countries, including the Netherlands, in the second quarter, the European economy seems to be cooling down somewhat which reduces the likelihood of interest rate hikes.

The stabilisation in financial markets is also reflected in property markets. In the first two quarters of 2023, the property market in the Netherlands showed a depreciation of over 7%*. Looking at the third quarter, we see that the markets seem to be stabilising with a slightly negative value development. For the fourth quarter too, we expect a slight decrease in values. Transaction volumes are not yet picking up because of market uncertainties. Limited transactions are taking place but, apart from some new-build transactions, these are mainly outdated portfolios that are being sold at a large discount. Further depreciation of non-durable property is therefore also expected. In addition, the refinancing of real estate will become an increasingly important issue now that many loans will expire in the next few years and parties are faced with a refinancing problem. We will continue to monitor these developments closely in the coming quarters.

*MSCI Netherlands Quarterly Property Index (Unfrozen) published Quarterly

Casper Hesp, Director Investment Management