RESIDENTIAL

Keypoints

  • Investment volumes are slightly increasing, partly due to privatisation deals
  • Prime yields are decreasing again
  • Housing shortage is increasing, leading to higher purchase and rental prices
  • Slow increase in construction costs

Slightly increasing investment volumes

Activity in the Dutch rental housing investment market remains limited in the second quarter. However, it appears that the volume in the second quarter will be higher than the same period a year earlier. Based on preliminary figures from RCA, the investment volume amounted to €595 million, only €15 million lower than the second quarter of 2023. It is expected that due to notifications, the investment volume will exceed the level of the second quarter of last year. The number of new construction transactions increased compared to last year, but was still relatively low. However, there was a lot of interest from parties buying residential complexes with a sell-out strategy. Due to the decreased vacancy rates and the impact of the Affordable Rent Act, there were many sales to private investors with a privatisation strategy. According to calculations by Colliers International and Capital Value, this accounts for approximately 40 percent of the total investment volume.

INVESTMENT VOLUME BY QUARTER (€, BILLIONS)

Source: RCA (2024), edited by Achmea Real Estate

Slight decrease in yields

The prime yields have decreased for the first time since 2020. For a prime residential property in Amsterdam, the yield decreased from 4.7 percent to 4.6 percent due to a slightly increased activity in the investment market. As risk-free interest rates increased in the second quarter, the spread decreased but remains at a normal level of around 180 basis points (source: C&W).

The average yields of residential complexes owned by institutional investors slightly increased in the first quarter (source: MSCI). Data on the second quarter will be available later, but it is expected to show a stabilization.

PRIME YIELDS

Source: MSCI, Oxford Economics, C&W (2024), edited by Achmea Real Estate

Housing shortage increases

In 2024, the housing shortage will have further increased from 4.8 percent to 4.9 percent. This is shown in the Primos forecast 2024 by ABF Research. Although the population is expected to grow less rapidly than in the previous forecast, the housing shortage is increasing due to a low housing production and an increase in the number of single-person households. The aim of the Ministry of the Interior and Kingdom Relations' Housing Construction Program is to realize a total of 900,000 homes in the period from 2022 to 2030. Of these, 178,400 were realized in 2022 and 2023. ABF Research expects that in 2031 there will be a shortage of 3.9 percent, almost double the national target of 2 percent. A housing shortage of 0 percent is undesirable because it will lead to vacancy in declining regions.

MOLENWERF - AMSTERDAM

Source: Achmea Real Estate

Rental and housing prices continue to rise

The housing shortage in the rental market persists, with financial vacancy remaining historically low at 1.2 percent in the fourth quarter of 2023. The interest in rental properties is therefore high, as evidenced by the many applications for new construction complexes. The consequence of low vacancy is that market rents have increased by 5.8 percent compared to a year earlier. Market rents have never risen so rapidly since the start of the MSCI quarterly index in 2008. Due to the low new construction production, it is expected that market rents will continue to rise. Data on the first quarter will be available later (source: MSCI).

House prices increased by 7.2 percent in the second quarter of 2024 compared to the first quarter, with a similar rise occurring only once in the past 29 years. Compared to a year earlier, prices rose by 13.6 percent, according to figures from the NVM. The number of transactions increased by 18 percent compared to the first quarter, as did the supply, which increased by 25 percent. However, this is due to seasonal influences: generally, more homes are put up for sale during the spring months. The scarcity indicator remained stable, with a potential homebuyer still having a choice of 2.4 homes. A year ago, this was 2.7.

NVM figures are based on the average transaction price and provide a rough but current indication of house price developments. The price index of existing owner-occupied homes (PBK) from CBS and Kadaster provides a more accurate but delayed indication. The second quarter figures are not yet available, but based on Oxford Economics' expectations, the PBK will increase by more than 2 percent in the second quarter. This will bring the index above the peak of mid-2022. The Eigen Huis market indicator, which shows consumer confidence in the housing market, has been steadily rising since 2023. In June, it rose further to 90 points, the highest level since July 2022 (100 is 'neutral' on a scale of 0 to 200).

INDEX OF PURCHASE AND RENTAL PRICES (2010=100)

Source: MSCI, Oxford Economics, Kadaster (2024), edited by Achmea Real Estate

Construction costs are increasing, margins are decreasing

The construction costs for new-build apartments increased by around 0.6 percent in the second quarter of 2024. On an annual basis, the growth was 2.4 percent, which is a normal long-term development. In 2022 and 2023, the growth was still over 7 percent. According to IGG's expectations, house prices will continue to rise slightly over the coming quarters, but the period of strong growth is temporarily over. A rise of approximately 1.5 percent is expected for the whole of 2024, partly due to an increase in collective agreement wages as of July 1st. The number of building permits requested in the first quarter increased compared to the same period in 2023, but remains well below the numbers in 2021 and 2022. As a result, the workload of many contractors is decreasing, and the tendering index is slightly decreasing. Due to the increased construction costs, builders' margins are decreasing (source: IGG).

CONSTRUCTION AND TENDER INDEX (2015=100)

Source: IGG (2024), edited by Achmea Real Estate

Outlook

It is expected that there will be more activity in the investment market in the second half of 2024. In addition, there is clarity about the Affordable Rent Act, which may provide extra liquidity through strategic reconsiderations. Interest rates are stabilizing and may possibly decrease slightly, but are not expected to lead to a significant downward correction of starting returns. Due to the increasing housing shortage, the high demand for housing will continue. In the rental market, this leads to persistently low vacancy rates and rising market rents. It also means that the operating risk for rental properties remains relatively low. In the housing market, there will continue to be a steep rise in house prices due to favorable economic conditions and limited supply. Construction costs will continue to rise, but at a much slower pace than we have seen in recent years.

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