Property prices in Belgium have experienced the lowest price rise in five years, but the positive effect of this on purchasing power has been minimalised by rising interest rates, further slowing down the property market.
Since 2017, the upward trend in prices steadily gained in intensity, rising from +2.3% to a peak of +6.1% in 2020, a year marked by the Covid-19 pandemic and the boom in transactions in the more rural areas in search of houses with gardens. This pushed up prices.
But sky-high mortgage rates then suppressed buyers' appetites, resulting in real estate transactions falling across Belgium. While the predicted drop in prices has not yet been recorded on a large scale, price increases were slightly lower. Price rises slowed to 3% at the national level – the lowest in five years.
While this could be seen as a boost for buyers, Immoweb stressed rising interest rates have put palpable pressure on Belgians' real estate purchasing power over the past year.
Reducing space
The property purchasing power of a Belgian household averaged 105 square metres (m2) in the last quarter of 2023, according to the Immoweb price index published on Monday.
This represents a decrease of -17% since January 2022, when 20-year mortgages were available at attractive interest rates averaging 1.5%, and -6% since this time last year, by which time the average interest rate doubled to 3.9%. At the same time, prices continued to rise, albeit less so than before.
"Consequently, this also reduced the space they could afford with the same monthly repayment," Piet Derriks, Managing Director of Immoweb, said. The automatic wage indexation in 2023 did limit the decrease in borrowing capacity, but it still led to a further slowdown in the property market.
The Brussels-Capital Region, where value prices are highest in Belgium (€3,300/m²), is the hardest hit by this slowdown. The increase here was just 0.7% in 2023, compared to +3.1% in 2022. In the last three months of 2023, there was even a 0.1% decrease.
As shown by other studies, the slowdown was felt the least in Flanders. Here, prices averaged €2,444/m², rising by 3.8% in 2023. In Wallonia (€1,718/m²), the price rise slowed from +3.8% in 2022 to +2.3% in 2023.
Long-lasting effect?
Immoweb argued that Belgian households can "optimistically look forward to an improvement in their purchasing power" this year.
This prediction is mainly based on the encouraging prospects of possible interest rate cuts – recently these fell to around 3.6% but they could go down to 3% – as well as rising incomes driven by the indexation of wages and stagnation in prices.
"However, to reach the purchasing power level of early 2022, the highest point in recent years, a fall in interest rates to 2% would be necessary, an eventuality that seems unlikely in 2024," Derriks noted.
It is also possible that the more favourable conditions could reinvigorate the market and provide some momentum in terms of the number of transactions, which could result in another slight rise in prices.
