Blog Homexperts – Luxembourg’s real estate blog

The government has put in place tax-efficient measures to boost the housing market by encouraging homeowners to sell real estate that they do not personally occupy. These measures end on 31.12.2018.

If you are thinking about selling a house, apartment or land that you do not personally occupy, this can save you a lot of money ... if you act quickly.

Which real estate are targeted?

Any type of property (house, flat, land) that you have held for more than 2 years and that you do not occupy yourself.

Indeed, if the property is your main residence, you do not pay any taxes on the capital gain anyway. On the other hand, if you sell property that is not your principal residence and that you have held for less than 2 years, the gain is considered as profit of speculation and will be taxed at the global rate, even if you sell before 31.12.2018.

What is the advantage of selling before 31.12.2018?

If you are the proud owner, for more than 2 years, of a building that you do not occupy yourself, you have big to win to sell it this year!

Normally the capital gain realized on the sale is imposed at half of the overall rate, i.e. maximum 21,8%. But if you sell your building before 31.12.2018, you will only be taxed at a quarter of the overall rate.

In other words, you save 50% of taxes if you sell in 2018!

In concrete terms, how is this going?

First, it is a question of calculating the capital gain realised on the sale of your building. The taxable capital gain is equal to the selling price - the revalued acquisition price - the acquisition costs - the possible deduction to which you are entitled (eg 50.000 EUR per spouse every 10 years).

This capital gain is then added to your annual income, which in turn increases your income and thus your global tax rate, since this exceptional income drives you up into higher brackets of progressive taxation.

Until 31.12.2018, the capital gain is only taxed on a quarter of the overall rate instead of half.

So you pay half the taxes if you sell in 2018.

Let's take a concrete example: if your global tax rate after adding the capital gain on the real estate is 30%, the capital gain on the property sold will be taxed at 1/4 of 30% (ie 7,5%) instead of being taxed at half the global rate (ie 15%).

What else is important to keep in mind?

The most important is time, since this measure applies to all sales for which the notarial deed is made before 31.12.2018.

Depending on your property, consider at least 1 to 3 months to find a buyer. Add 1 month for the buyer to get his bank loan and 2 good weeks to fix the appointment with the notary.

So you see… to avoid missing the advantage, there is no time to lose.

Besides, do not forget to use your allowance (eg 50.000 EUR per spouse every 10 years), but also the costs of obtaining (eg the commission of agency) and the work having helped to increase the value of the property (eg new kitchen, renovation of the roof...) that can be added to the acquisition value and thus reduce the added value.

Do not hesitate to contact us for further insight and to help you sell your building this year and save significant amounts.

When serious estate agencies meet owners with a property to sell, they’re used to hearing this phrase.

Unfortunately, in order to get you to sign up with them, many estate agents have no argument to make other than "promising" an exaggerated sale price.

You should be aware that when an agent signs a contract they can never promise a specific sale price. Even the price the agent decides to write into the agency contract is worthless! Because when it comes down to it, it’s the purchaser – i.e. the market – that is going to dictate the final sale price, and not the agent.

Unfortunately, very often the owner – gullible and acting in good faith – interprets these false promises as being a definite guarantee that the property will get sold for the price the agent has "promised". It simply doesn’t work like this!

Often it’s those very agents who promise the highest prices who are also, sadly, the least competent. This is because determining the real "market price" firstly requires expertise and extensive experience, and secondly some pluck... to get the owner to accept the correct market price. 

So you ought to be somewhat sceptical of an agent who "promises" you the highest price. Don’t let yourself be blinded by unsubstantiated promises, but instead trust your instinct as to whether the agent you’re dealing with is reliable and has sound expertise.

First of all, what is a “correct valuation”?

There’s only one answer: it’s the valuation which is closest to the "market value", i.e. the price which buyers are willing to pay for your property (and which the banks are willing to fund).

It’s definitely not the highest price that an agent "promises" you (sic). To be sure, such a price can make you dream – but what’s the point of dreaming if your property won’t get sold? 

Why is a correct valuation so important?

As was explained in another article on our blog, it takes on average 15 months to sell a house and 17 months a flat. This is a really long time. However, based on these figures from the Observatoire de l'Habitat this is indeed how it is. One of the main reasons why it takes this (enormous) length of time is that very often the asking price is too high. However, you won’t hoodwink anyone: buyers are no fools... and the banks even less so. So your property won’t sell for more than the market price. This means that your house or flat will only sell after you’ve dropped the price (repeatedly). 

To save all this time (and your nerves), it’s worthwhile aiming to determine the correct market price from the outset. And you’ll only do this with a correct valuation. 

How do you know when you’ve got a correct valuation?

Unfortunately, it’s not an exact science and there’s no miracle solution (at least not yet). So you’ll have to rely on your agency having the experience, expertise and reliability:

• experience, because a correct valuation takes years of working in the sector to be able to give a sound, spontaneous assessment
• expertise, because there are various specific methodologies which can be used to estimate the price fairly accurately. Such methods include calculations based on surface area, volumetric analysis, rental return, price comparisons, etc. And real understanding of these methods, and all their particular ins and outs, is required.
• reliability, because ultimately correct valuations are not made hastily by one person and by using a single method only, but by involving at least two colleagues who’ll value your property individually and use at least two different methodologies. 

If you bear all this in mind, you’ll very soon realise how serious your agent’s valuation is. If they "reel out" a price verbally or even in writing, but without explaining the methods used, warning lights should start to flash. On the other hand, if your agent is able to explain to you in detail the methods used and gives you a carefully worked out document outlining all their conclusions, you’ll know you’re dealing with a professional. If you’re in any doubt, don’t be afraid to challenge your agent on any point, and usually you’ll see straightaway if they really mean what they say.

We’ve already looked at this in other articles: it’s tempting to put your property on at a high price.

However, to explain the risks, let’s take a scenario that crops up on a regular basis. 

Scenario 1

• Owner: I’ve compared other properties on the Internet and mine is worth EUR 800,000.
• Unscrupulous agency, which knows for a fact that the actual market price is more like EUR 700,000: That seems a bit high to me, however, it should be alright, okay no problem... I’ll draw up a contract for you at EUR 800,000.

Outcome: after more than a year the property will be sold for EUR 700,000. 

Scenario 2

• Owner: I’ve compared other properties on the Internet and mine is worth EUR 800,000.
• Professional agency: Based on our analysis using this method and that method, we estimate the market value to be EUR 700,000. We can put it on at EUR 735,000 EUR, but EUR 800,000 is unrealistic. 
• Owner: Let’s give it a try all the same at EUR 800,000; we can always lower the price afterwards.

This is a common reaction, but it’s also a typical pitfall. 

So what are the real drawbacks of "giving it a go", i.e. asking a high price only to lower it afterwards?

• First of all, you need to realise that buyers are not idiots. A buyer will usually spend months, if not years, looking round properties before buying. So your buyer knows exactly what the prices are... and your buyer also knows exactly which properties get reduced on a regular basis. And behind your buyer is their bank, which is also completely up to speed with current prices and will not fund a purchase which is overpriced compared to its market value. Unless you have a uniquely exceptional property, there’s very little chance of selling it above the market price.
• Secondly, practically 80% of views of property adverts happen during the first week of publication. If the advertised price is too high during this week and then you lower it subsequently, buyers who might have been interested will no longer be looking at your advert. This means you’ll have missed the best time to reach potential buyers.
• You shouldn’t bank either on attracting buyers and then negotiating a price reduction when they visit. Since they’re far more on top of sale prices than you are, they won’t even bother to come and view your property if it’s too expensive. So you won’t even get the opportunity to offer them a reduction at a viewing.
• So after a few weeks (or months), you’ll come to realise that the advertised price is too expensive and the fateful moment will arrive when you’ll "drop the price later". However, by now the damage is done. Since from this point on, the buyer is going to wait for the next price drop, and the next... Until the price comes down to the actual market price. However, by the time this happens you’ll have wasted a lot of time and frazzled your nerves.

Please note that we’re not saying that you have to put your property on at a reduced price. Quite the opposite. You should put it on at the right price, i.e. at the price the market is willing to pay (or very slightly above)... and to do that you need a professional valuation determined by using several methods and ideally several agencies. 

When owners want to sell their house or flat, one of the first things they do is search on property portals to compare prices.

This seems a logical, understandable way of going about things; however, you need to be aware that as a rule the prices shown are not the prices at which the properties are sold.

According to various independent estimates, properties are in fact sold at prices often 10 to 20% below the advertised price!

So if you work out the value of your property by comparing it with similar ones on the Internet this may give you ideas for a price that’s actually quite unrealistic.

If all you’re going to go by when deciding your selling price is this price comparison, you’re likely to waste a lot of time trying to sell your property. And at the end of the day, in order to sell it, you’ll still have to drop your price to the market price.

Analysis of recent statistics from the Observatoire de l'Habitat shows that on average it takes 15 months to sell a house and up to 17 months for a flat. This is mostly because the initial asking prices are too high – since properties which are correctly priced will normally sell within five to six months.