Explore the process of investing in property in Luxembourg, whether you're considering buying an existing property, one under construction, or planning to build from the ground up. This article will walk you through the property purchasing process, sales agreements, and the overall approach to property investment in Luxembourg.
Overview of the Luxembourg real estate market
In the last two decades, the Grand Duchy of Luxembourg has significantly developed, leading to a consistent upward trend in real estate prices. Several factors contribute to this phenomenon, primarily the continuous influx of newcomers, a high demand for housing in urban areas, and a growing trend of younger individuals becoming homeowners. Consequently, both the rental and sales markets have experienced substantial inflation.
Indeed, the real estate market in Luxembourg has expanded significantly in recent years. The country has leveraged its strong economy and increased housing demand, driven mainly by the influx of foreign workers and the growth of job opportunities in key sectors like finance. This has resulted in a population increase.
House prices in Luxembourg are generally considered to be on the higher side when compared to European norms. This is mainly due to high demand and limited available land for construction. Major cities like Luxembourg City and Esch-sur-Alzette have seen a notable surge in housing demand, leading to elevated price levels.
The residential real estate market is also influenced by housing policies and regulations established by the Luxembourg government. These policies aim to facilitate access to affordable housing and provide support to local citizens in their housing endeavors.
It's important to note that the state of the real estate market can vary depending on specific regions within Luxembourg and various housing categories, including apartments, detached houses, luxury properties, and more.
For a more accurate understanding of the current real estate market conditions in Luxembourg, it is advisable to consult specialized information sources, collaborate with real estate agencies, or seek insights from industry experts who have access to up-to-date data and knowledge.
Urban and rural areas in Luxembourg
However, there are noticeable differences in sales prices between urban and rural areas. The closer you are to the capital and nearby towns, the higher the prices tend to be. This is mainly due to strong demand and the convenience of having various amenities nearby, such as schools and major companies. Conversely, prices are lower in the Grand Duchy's northern and eastern parts.
Buying a turnkey property in Luxembourg
To purchase an existing property in Luxembourg, there are several steps that must be completed. A preliminary sales agreement, known as "compromis de vente," must be prepared and provided to the prospective buyer by the seller. This agreement serves as a preliminary contract before the final sale is formalized through a notarial deed. It outlines the mutual consent of the seller and buyer to proceed with the sale at the agreed-upon price.
The sales agreement of the property in Luxembourg
Similar to a lease agreement, the preliminary sales agreement should include various essential details to ensure the mutual protection of both parties until the property transfer occurs. Specifically, it must contain:
- Names and addresses of both parties;
- A concise property description;
- Any existing easements or encumbrances on the property;
- The sale price and associated payment terms;
- The identity of the notary overseeing the transaction;
- The date of the agreement's signing;
- The designated date for the buyer to assume ownership of the property;
- A suspensive clause that allows for the possibility of nullifying the "compromis de vente" if the potential buyer's loan application is rejected by a lending institution;
- A penalty clause outlining compensation in case either the seller or buyer cancels the agreement without a valid reason.
Registration of the "compromis de vente" in Luxembourg
The next step involves registering the 'compromis de vente' with the Administration de l'enregistrement et des domaines (AED). This registration should be done by a non-professional in the real estate field within three months of the agreement's signing. This process makes the "compromis" legally binding against external parties, starting from the registration date. It serves as a safeguard for the buyer's investment in case the seller fails to uphold the terms outlined in the "compromis".
If a suspensive clause is included, the registration fees amount to 12%. However, when a suspensive clause is not present, the registration fees are 7% of the agreed sale price. The person presenting the "compromis" to the AED is responsible for ensuring that the corresponding amount is properly stamped.
The notarial deed in Luxembourg
A notarial deed is prepared or supervised by a qualified public official. When there is a transfer of property ownership, it is mandatory to create such a document, although it is primarily a procedural requirement because the 'compromis de vente' serves as the actual sale agreement once it is signed.
Nevertheless, the notarial deed holds greater significance as it marks the beginning of legal warranties from the moment of agreement between the seller and buyer. The acquisition of an existing building is governed by articles 1642 and the following of the French Civil Code.
Buying a building under construction in Luxembourg
There are two distinct methods for selling properties under construction: forward sale and sale in the future state of completion. The completion of the property is documented by the involved parties or a qualified individual, and this record must be formalized in a notarial deed, signifying the formal handover of the building.
In a forward sale, the seller commits to providing the property upon its completion, and in return, the buyer commits to receiving the property and making the payment upon delivery. This results in the automatic transfer of ownership, with the completion of the building documented in a notarial deed. Ownership transfer becomes effective on the date of the sale.
The forward sale agreement needs to be formalized through a notary. It is marked by two key aspects: firstly, ownership doesn't change hands until construction is finished, and secondly, the buyer only makes the payment on the actual day of ownership transfer, which is also the day the property is handed over. During this interim period, the deposited funds are held in a restricted bank account under the seller's name, safeguarded against seizure or allocation as construction advances.
In a "vente en état futur d'achèvement" agreement, the seller's land rights are immediately passed on to the buyer, along with ownership of any existing structures. As construction progresses, the completed portions become the property of the buyer, who is then responsible for making payments based on the construction's progression. Nevertheless, the seller retains control over decisions until the work is accepted by the buyer.
The reservation contract in Luxembourg
The reservation contract is applicable before both the contract of sale in the future state of completion and the forward sale. In this agreement, the seller commits to reserving a portion or the entire building for the buyer in exchange for a deposit placed in a dedicated account under the buyer's name.
As a result, it's not possible to create a preliminary sales agreement before acquiring an already constructed property. This is because, in the case of an existing property, only a reservation contract can be entered into before a forward sale or a sale in the future state of completion.
The deed of sale drawn up before a notary in Luxembourg
The notary is responsible for drafting the sales deed, which should include several crucial elements. These elements typically consist of:
- Identification details of the land and building owner;
- The issuance date of administrative authorizations and the relevant conditions (essential for deed preparation);
- A description of the building or its specific section being sold, including the agreed-upon level of completion as determined by the parties involved;
- The sale price and payment terms, as well as any provisions for potential revisions to these terms;
- The anticipated delivery date, and in the case of a sale in a future state of completion, assurance for the full completion of the building.
The notarized deed should be accompanied by several supporting documents, which may include architectural plans displaying facades, various levels, and cross-sections of the building, along with dimensions and details regarding room and corridor areas. Additionally, a descriptive report outlining the building's composition and technical attributes, including specifications for materials, labor, and necessary equipment, should be included. If the property pertains to a condominium, the condominium regulations must also be provided.
It's crucial to note that if any of these required documents are missing, the sales deed may be considered null and void.
Transfer of ownership in Luxembourg
In a sale in the future state of completion (vente en état futur d'achèvement), the buyer acquires ownership of the buildings specified in the sales agreement as soon as they are completed and integrated into the ongoing construction. Additionally, ownership of the land designated for building is transferred immediately upon the conclusion of the contract.
Building construction in Luxembourg
The individual interested in construction, or the client, will typically initiate contact with an architect to create the blueprints and handle the necessary administrative approvals. The client is also responsible for establishing separate agreements with each trade involved in the construction process and overseeing on-site coordination of the work.
For significant construction projects, it's crucial to obtain approval for essential roadworks and public facilities required for project completion. When purchasing land or a building, various permits must be secured, including road permission, commodo/incommodo authorization for listed establishments, permits for environmental conservation and natural resources, clearance permits for deforestation, permissions for national sites and monuments, as well as approvals from the Department of Transport or the Ministry of Sustainable Development and Infrastructure.
Moreover, before commencing any construction, expansion, alteration, renovation, or demolition activities, it's essential to obtain a building permit from the local municipal authority in the vicinity of the building or land. The application process may vary between different municipalities, so it's advisable to consult with your local administration before beginning any work.
If direct communication with the local authority is not feasible, you have the option to engage a dedicated intermediary agency, such as an office or an architect. The formal application should be submitted in written form to the mayor and typically requires multiple copies. A processing fee is charged for the application, payable to the municipal collector. The fee amount varies depending on the specific commune and the scope of the project. It's important to note that construction can only commence once the building permit has been obtained.
Useful links:
Mortgage offices: Administration de l'enregistrement et des domaines
Land registry offices: Administration de l'enregistrement et des domaines www.aed.public.lu/functions/contact/bureaux_enregistrement.html
Flipboard investissement immobilier ' Banque de Luxembourg's investment magazine
Fonds du logement ' Buying a home
Application for building permits:
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