Dutch house prices accelerating!
House prices are rising at an accelerating pace in the Netherlands, due to strong demand and inadequate housing supply.
In Amsterdam, the price of existing homes surged by 12.6% (11.2% inflation-adjusted) during the year to Q1 2018, to an average of €444,671 (US$524,290), according to Statistics Netherlands (CBS), and by 7.2% (7% inflation-adjusted) during the latest quarter. Nationally, the average house price rose by 8.2% (6.9% inflation-adjusted) to €278,159 (US$327,964) in Q1 2018 from a year earlier, and by 4.1% (3.9% inflation-adjusted) from the previous quarter.
All property types rose in price, nationwide, during the year to Q1 2018.
- Apartment prices rose by 13.5%, to an average of €236,724
- Terraced house prices rose by 7.2%, to an average of €256,284
- Detached house prices rose by 6%, to an average of €409,568
- Semi-detached house prices increased 6.9%, to an average of €300,893
- Corner houses saw price increases of 6%, to an average of €268,097
After a housing boom lasting almost 15 years, the Dutch housing market weakened in 2008, and only began to recover in 2014.
Home sales rose by almost 13% to 241,860 units in 2017, according to the CBS. Strong demand has been fuelled by low interest rates, as well as strong economic growth. In Q1 2018, there were about 52,105 houses sold, down 6.8% from a year earlier – but the second highest sales ever recorded.
Despite robust demand, housing supply remains limited. In March 2018, only 5,986 housing permits were granted, down by 19.8% from a year earlier. Currently, there are a total of 7.76 million dwelling units in the country.
The housing shortage in the Netherlands was estimated at about 178,000 units in 2017 and is expected to reach 200,000 units this year.
Nationwide house prices are expected to rise further by about 8% this year, according to ABN Amro. The bank also forecasts a 5% decline in the number of homes offered for sale, both in 2018 and 2019.
“The housing market is under pressure. Buyers have less choice because fewer homes are coming on the market. So they are offering higher prices in an effort to buy a home,” said economist Philip Bokeloh.
The Dutch economy grew by 3.2% in 2017, the highest growth since 2007, amidst strong investments and exports, according to the CBS. The Netherlands’ GDP is expected to grow by another 3% this year and by 2.6% in 2019, according to the European Commission.
Rental yields remain attractive in The Hague
Gross rental yields from apartments in the Netherlands continue to be attractive. The returns on investment are not princely – but they beat those in many other countries, especially given the excellent security of the Netherlands, its stability, rule of law, generally vibrant economy, and good long-term prospects.
In Amsterdam, yields on apartments range from 3.7% to 5.3%. As usual, smaller apartments return higher yields than larger.
In The Hague, yields range from 5.6% to 6.4%.
The Hague is a less expensive city to buy in, and really merits consideration by investors. First, it is the seat of government, so most foreign embassies in the Netherlands and 150 international organisations are located in The Hague, including the International Court of Justice and the International Criminal Court. Several large international businesses have their headquarters in The Hague, including Shell, the world’s second largest company in terms of revenue. This means that there is an ideal group of expatriate tenants to whom owners can rent their apartments, as 26% of the jobs in The Hague are either offered by the Dutch government or by international institutions. In addition, for those interested in the short-term rental market, tourism is important, with 1.2 million tourists a year.
English is spoken virtually everywhere in the Netherlands, and non-Dutch speaking property investors from abroad will experience no difficulty navigating the environment.
Round trip transaction costs are mid-range on residential property in the Netherlands, see our Netherlands transaction costs analysis and our Netherlands transaction costs compared to other locations.
Taxes are generally high in the Netherlands
Rental Income: The income tax on renting residential property is quite high, though the tax is not really an income tax. In reality it is a flat tax, with 30% levied on the assumed rental yield. As of 2017, the applicable deemed rental yield depends on the value of the assets.
Capital Gains: For the sale of real estate that was used as part of a rental business enterprise, capital gains are taxed as part of income in Box 3 i.e. 30%.
Inheritance: Wealth acquired by inheritance from an individual who has properties in the Netherlands is subject to inheritance tax. Different rates apply, depending on the relationship between the heir and the testator where there are three categories.
Residents: Residents are taxed on their worldwide income.
Total transaction costs are moderate in the Netherlands
Total transaction costs are between 6.63% and 9.86% of the total dwelling price for existing houses, which is moderate by international standards. The bulk of these costs are paid by the buyer, including the transfer tax,legal fees and registration fees. Real estate agent’s commission at 2% to 4% (plus 21% VAT) is shared between buyer and seller.
If the property is newly constructed (or less than two years old) the transfer tax is replaced with the 21% VAT.
Almost impossible to evict tenants in the Netherlands
Dutch rental market practices are pro-tenant.
Rent: Landlords can set the rent freely and adjust the rent, for properties above the ‘liberalization rent limit’ of €604.72 per month. A deposit of two to three months is customary.
Tenant Security: The most dangerous aspect for a landlord in the Netherlands is that once a property has been rented, tenants are almost impossible to evict. The basic Dutch rental contract is one of unlimited duration. Landlords can only give notice in strictly defined cases, and it is extremely difficult for owners to evict tenants once they are established.
Modest economic growth, improving government finances
The Dutch economy is heavily dependent on foreign trade, with exports accounting for 83% of the country’s GDP. Because of this, the euro crisis strongly affected the Netherlands, sending its economy into a recession in 2011 which continued in 2012 and 2013, with economic contractions of 1.1% and 0.2%, respectively.
In 2017, the Dutch economy expanded by 3.2%, after GDP growth of 2.2% in 2016, 2.3% in 2015 and 1.4% in 2014
2017 was the economy’s highest growth since 2007, amidst strong investments and exports. In the first quarter of 2017, the Dutch economy grew by 2.8% from a year earlier, following annual growth rates of 2.9% in Q4 2017, 3% in Q3 2017, 3.4% in Q2 2017 and 3.3% in Q1 2017, according to CBS. It was the country’s eighteenth consecutive quarter of expansion.
The economy is projected to expand by 3% this year and by another 2.6% in 2019, according to the European Commission.
The national debt continues to decline. During the recession, the government boosted the economy through stimulus programs and bank bailouts, resulting in a budget deficit of 5.6% of GDP in 2009, 5.1% of GDP in 2010 and 4.3% in 2011. As a result, the country’s debt rose to 71% of GDP in 2012, far higher than the permissible upper limit of 60% stipulated by the EU Stability Pact. In 2017, the gross public debt fell to 56.7% of GDP, from 61.8% in 2016, 65.2% in 2015, 68.8% in 2014 and 68.6% in 2013. It was the first time in six years that public debt fell below the 60% threshold.
On the other hand, the country recorded a public budget surplus of 1.1% of GDP in 2017, an improvement from a surplus of 0.4% of GDP in 2016 and in contrast to deficits of 2.1% of GDP in 2015, 2.3% in 2014, 2.4% in 2013, and 3.9% in 2012.
Netherlands is projected to record a surplus of 0.7% of GDP this year and 0.9% of GDP in 2019 while gross public debt is expected to decline further to 53.5% of GDP this year and to 50.1% of GDP in 2019, according to the European Commission.
Inflation stood at 1.7% in May 2018. Inflation is expected to be 2% this year, according to the IMF.
In April 2018, the seasonally-adjusted nationwide unemployment stood at 3.9%, down from 5.1% a year earlier and the lowest rate since February 2009.