RESIDENTIAL

Keypoints

  • House prices rise again
  • Rents rise sharply, vacancy rates remain low
  • Risk-free interest rates push initial yields up further
  • Construction cost growth levelling off, tender index falling

House prices rise again

House prices rose again in the third quarter, according to figures from the NVM. Compared to the previous quarter, the average transaction price of existing homes was 1.7 percent higher. Now that house prices have risen for the second quarter in a row, the decline - which started at the end of 2022 - seems to be over. The sharp increase in mortgage rates over the past year has now been priced in and is being compensated by rising wages and low unemployment rates. The number of transactions was significantly lower in the third quarter: 18 percent less than a year earlier, 9 percent on a quarterly basis.

Supply fell by 7 percent compared to the second quarter. As a result, the tightness indicator fell again. A potential home buyer now has a choice of 2.6 homes, compared to 2.7 in the previous quarter. New construction prices also rose slightly by 0.3 percent. The NVM figures are based on the average transaction price and provide a rough, but current indication of house price developments. The price index for existing owner-occupied homes from CBS and Land Registry provides a more accurate, but delayed indication. The index for the third quarter is still being calculated, but based on Oxford Economics' expectations it will rise by about 0.5 percent. The Eigen Huis market indicator, which shows consumer confidence in the housing market, rose to 77 points in September (100 is 'neutral' on a scale of 0 to 200).

INDEX OF HOUSING AND RENTAL PRICES (2015=100)

Source: Kadaster, MSCI, Oxford Economics (2023), edited by Achmea Real Estate

Shortage of rental properties drives up rental prices

Market rents of homes owned by institutional investors were 3.8 per cent higher in the second quarter than a year earlier. The vacancy rate rose slightly but still remains well below 2 per cent, making it historically low. This shows the tightness in the rental market. New construction of rental properties is stagnating and many private investors are selling homes due to the cabinet plans for rent regulation. Combined with low unemployment, this creates high demand for rental housing. As a result, vacancy rates of institutional-managed rental properties remained low in the second quarter. Third-quarter figures are not yet available (source: MSCI).

PIRAMIDES - AMSTERDAM

Source: Achmea Real Estate

No movement yet on the investment market

The investment volume of Dutch rental properties remained at another low level of around €0.4 billion in the third quarter, preliminary figures from RCA show. Although there is always relatively low activity in the third quarter, this was the lowest quarterly volume since 2014. In particular, increased interest rates are causing lower interest in real estate, in addition, there is still no clarity on the regulation of rents in the Netherlands. Several foreign parties have announced they are winding down their residential portfolios in the Netherlands. They may do this by selling properties to private individuals, but sales to other investors will increase investment volume in the coming quarters.

RESIDENTIAL INVESTMENT VOLUME BY QUARTER (X € BILLION)

Source: RCA (2023), edited by Achmea Real Estate

Initial yields continue to rise

Rental housing prime yields (prime Amsterdam) rose again by 25 basis points in the third quarter compared to the second quarter. With risk-free interest rates rising, prime initial yields are now 120 basis points higher in total. With risk-free interest rates rising above 3 per cent in the third quarter, the question is whether the rise in prime initial yields is over. Average initial yields of rental properties owned by institutional investors also continued to rise in the second quarter of 2023, now about 70 basis points higher than in early 2022 (source: MSCI). Third-quarter figures will be available later, but given the trend in prime yields, a further rise towards the 5 per cent mark seems almost certain.

PRIME YIELDS

Source: Oxford Economics, C&W & MSCI (2023), edited by Achmea Real Estate

Construction cost growth levelling off

Structural construction costs for Dutch new homes rose slightly by about 0.2 per cent in the third quarter. On an annual basis, the increase is about 4.5 per cent. The tender index, which includes contractor profit and risk, remained stable in the third quarter. Construction companies are suffering from empty order books due to lower construction activity. On a yearon- year basis, the tender index still rose by 2.7 per cent. Construction consultancy IGG Construction Economics expects construction costs to continue rising in the coming year, also due to rising wage costs. However, growth will be lower than in previous years and more in line with long-term inflation. A slight decrease is expected for the tender index, though, which will therefore slightly reduce the cost of new construction for investors (source: IGG).

NEW BROOKLYN (ALMERE) UNDER CONTRUCTION

Source: Achmea Real Estate

Outlook

House prices are expected to experience stable or slightly rising trends in the coming period, with high mortgage rates being partly offset by wage increases. Due to delays in the new construction market, scarcity of owner-occupied houses remains. Tightness also persists in the rental market, with scarcity here set to increase even faster due to the leasing of rental properties. In contrast to the user markets, the investment market will continue to struggle in the coming quarters. Further rises in risk-free interest rates are putting upward pressure on initial yields and many investors are still keeping a wait-and-see attitude due to uncertainty about regulation of the rental housing market.

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