Residential

Keypoints

  • Increased investment activity by institutional investors
  • Initial yields continue to decline
  • Purchase and rental prices are rising sharply
  • Construction costs continue to rise slowly, while project backlogs are increasing again

Increasing Investment Volumes

Activity in the investment market for Dutch rental properties has increased in the third quarter. There is relatively high activity from parties purchasing existing complexes for a privatisation strategy. Due to the increased vacancy rates, a privatisation strategy remains attractive. Among other factors, sales from the Eres portfolio suggest that the volume in 2024 is likely to exceed that of last year. In total, approximately €2.2 billion in residential investments has been sold in the first three quarters of 2024, based on preliminary figures, which is €300 million more than in the same period in 2023. Institutional investors have accounted for a quarter of the investment volume in 2024 so far and have a positive investment balance in the first three quarters of 2024, with more purchases than sales. In 2023, the balance was strongly negative.

RESIDENTIAL INVESTMENT VOLUME BY QUARTER (€, BILLIONS)

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

Initial yields decline slightly

The prime initial yields decreased slightly in the third quarter by approximately 5 basis points. As the risk-free rates also fell in the third quarter, the spread over the risk-free rate has increased further (source: C&W). Due to the increased spread, real estate is becoming increasingly attractive in the investment portfolio. One byproduct of the declining interest rates is that the over-allocation to real estate by institutional investors is decreasing, creating more room for new real estate investments

PRIME YIELDS RESIDENTIAL

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

Scarcity in the housing market drives up rents further

The housing scarcity in the rental market continues, with financial vacancy remaining low at 1.3 percent in the second quarter of 2024. As a result of the low vacancy rates, market rental prices have increased by 7.4 percent year-on-year, at a record pace. Due to low new construction production and the rise in sell-offs, it is expected that market rents will continue to rise. Figures for the third quarter will be available later (source: MSCI). Recently published indicators from sources such as Pararius and NVM/VGM NL show that rental prices are expected to rise further in the third quarter.

MOLENWERF - AMSTERDAM

Source: Achmea Real Estate

The purchase market continues to perform well

House prices increased by 0.4 percent in the third quarter of 2024 compared to the second quarter. Compared to a year earlier, prices rose by 12.3 percent. This is evident from figures from the NVM. The number of transactions rose by 1 percent compared to the second quarter and by 10.9 percent compared to a year earlier. This brings the number of sold homes within a single quarter to the highest level in almost four years. This is noteworthy, as historically, significantly fewer homes are sold during the summer holiday. In contrast, the supply decreased by 2 percent in the last quarter. This decline is also reflected in the tightness indicator: a potential homebuyer has an average choice of 2.1 homes. A year ago, this was still 2.6 homes. The NVM figures are based on the average transaction price and provide a rough but current indication of house price development. The price index for existing owner-occupied homes (PBK) from CBS and Kadaster provides a more accurate but delayed indication. The third-quarter figures show an increase of over 3.5 percent, raising the index by over 11 percent year-on-year. The Eigen Huis market indicator, which reflects consumer confidence in the housing market, has been steadily rising since 2023. In June, it further increased 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 (2015=100)

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

Building costs continue to rise, margins decline

The construction costs for new-build apartments increased slightly by about 1 percent in the third quarter of 2024. Year-on-year, the growth was approximately 4 percent, above the long-term average but lower than the high growth in 2022 and 2023. According to IGG, construction costs are expected to continue rising over the next few quarters, but growth in 2025 will likely take on a more inflation-following character of around two percent. The upward trend in the number of building permits continued in the second quarter, but it remains lower than the high numbers in 2020 and 2021. As a result, the workload for contractors is increasing slightly, leading to an uptick in the tendering index due to rising margins (source: IGG). Figures for the third quarter will be available later.

INDEX OF PURCHASE AND RENTAL PRICES (2015=100)

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

Outlook

The investment market is expected to reach higher volumes in 2024 than in 2023 due to increased activity from parties employing a privatisation strategy. However, it is not anticipated that the high volumes of previous years will be achieved. Risk-free rates are expected to remain stable around current levels, with slight declines possible if the ECB decides to lower rates more quickly. This could lead to a slight decline in initial yields, but significant downward corrections seem unlikely due to the relatively low spreads. In the purchase market, high demand for homes is driving further increases in house prices. Scarcity is also noticeable in the rental market, where vacancy levels remain low, resulting in a rapid increase in market rents. Due to legislation limiting the rise in contract rents in both the free and regulated sectors, turnover rates are declining further. While construction costs continue to rise, they are doing so much more slowly than we have seen in recent years.

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