Residential market: demand undiminished
The residential market rests on good foundations:
- Population growth is expected to be strong, especially around the cities;
- The housing shortage remains significant and is likely to be worsened by the coronavirus crisis as a result of the decline in new builds and the growing population;
- Although the mortgage interest rate has increased by several dozen basis points, it remains historically low.
Residential investment market continues despite coronavirus
In the first four months of 2020, the residential sector was again the largest sector at € 2 billion despite a 35% decline compared to the same period in 2019. However, this should be seen in perspective because this period in 2019 saw Round Hill sell 9,544 residential properties (the Vermeer portfolio) to Heimstaden for € 1.4 billion, which creates a distorted picture. Amsterdam and Rotterdam in particular saw a very strong start to 2020, with record volumes of € 575 and € 200 million respectively, which illustrates the positive sentiment among investors.
More than ten sizeable transactions involving existing residential complexes/portfolios have been completed since Covid-19. There has also been no shortage of new build transactions. Dutch and foreign institutes in particular have approved and completed their purchases in recent weeks.
Decline in demand and consumer confidence on the owner-occupied housing market
Currently, we are seeing two important trends on the owner-occupied housing market:
- Unemployment is set to increase, which will reduce demand for owner-occupied properties;
- Traditionally, consumer confidence is an important indicator for the (owner-occupied) housing market, and this saw a sharp decline in April: Statistics Netherlands reported the biggest fall ever. Consumers are particularly negative about the economic climate in the next 12 months. The general willingness to buy has also seen a significant fall.
These trends are likely to result in a reduction in both the opportunities to purchase and willingness to buy. Conversely, this will make the rented sector more interesting for both tenants and investors.
Little impact on rental market
All of this means that the effects on the rental market are less significant, especially in the social and mid-priced rental segments. Many investors have yet to see any significant trends in terms of rent arrears. This will remain the case providing that the increase in unemployment does not become excessive. Nevertheless, members of the IVBN (Association of Institutional Property Investors in the Netherlands) will restrict their rent indexations to a maximum of 1% above inflation for both regulated and free-market rental contracts with effect from 1 July 2020.
New builds face further pressure
Construction has experienced a dual effect from the coronavirus crisis. On the one hand, acute problems, such as the lack of migrant workers and supply issues, are resulting in a decline in construction volumes. On the other hand, the number of building permits issued is expected to fall to 48,000 this year, well below the anticipated 75,000. This will place the construction of new build homes under even further pressure.
Demand for residential investments undiminished
The continuing strong foundations and stable nature of the residential investment market are expected to ensure that the strong demand for residential investments remains undiminished, and it could even see a rise. The affordable rented property segment shows particular promise.
The continuing strong foundations and stable nature of the residential investment market are expected to ensure that the strong demand for residential investments remains undiminished, and it could even see a rise.