Is Belgium’s real estate bubble about to burst?

Wednesday, 14 February 2018

This is an opinion article by an external contributor. The views belong to the writer.

The Belgian housing market is in a unique position, in that never has housing cost so much, in both real and nominal terms. A 2012 report by The Economist claimed that Belgian property was the most overvalued in all of Europe, with figures ranging to as high as 56% price inflation. Despite these figures the market, fuelled by a glut of cheap capital, is booming.

House and rental prices have increased by 300% since the mid-90s and the perfect storm of policy and circumstance that led to this increase shows no signs of abating. The consequences are only now starting to be felt. To compound the issue further, recent political scandals involving property developers in Belgium are leading many to claim that there is no political will to change, quite the contrary, with many politicians celebrating the precarious increase in wealth as a victory for homeowners.

How did we get here?

Worldwide investment in real estate after the dotcom crash of the early 2000s is widely understood. Investors fearing another loss of wealth began to invest in the real estate market rather than the volatile stock market. Lax lending requirements and supplementary services led to a dramatic increase in home buying and the eventual financial crash of 2008. Housing prices around the world took a hit. Except in Belgium, where they not only failed to decrease, but continued increasing.

Problematically, the purchasing power of the average Belgian in real terms has stagnated, with consumer purchasing power equal to that of 2004, and yet house and rental prices have increased. In the wake of the crisis, the ECB’s quantitative easing programme flooded the market with easy-access capital causing housing prices to increase further. Basic economics would suggest that increased prices would lead to decreased spending, but real estate purchases in gross amount of transactions peaked in Q3 of 2017. Critically, data indicates that there has been a sharp increase in real estate purchases as investments. That is to say that buyers see property as an investment vehicle, rather than as a domicile.

Homeownership is a staple of Belgian life, with homeownership rates hovering around 73%. That’s higher than France, the UK, Germany and the Netherlands. Belgians feel an almost sacred urge to own their own home. Tax deductions for first-time homeowners alleviates some of the financial pressures. But a more likely explanation for why so many people see real estate as an investment vehicle is the fiscal policy regarding these types of investments. Capital gains are almost non-existent in Belgium, and tax on rental income is negligible.

Belgians are also financially quite conservative, and despite the current government’s efforts to liberate capital locked away in savings (Belgians are the world’s biggest savers, with around 260 billion euro hidden under the proverbial mattress), in order to steer it towards more productive investments, the average Belgian has a tremendous faith in property. “I can see bricks and land, I can’t see stocks and bonds”, they’ll tell you.

Why is it a problem?

There is a human tendency towards cataclysm. We remember a volcanic eruption but ignore the millions of years of tectonic movement that preceded it. So on the one hand, there is talk of a real estate bubble, and when people talk about bubbles they’re really talking about the ensuing bursting of that bubble. One critical difference between the US, where the real estate bubble did burst, and Belgium would be banks’ lending conditions. A part-time employee can’t get a loan without a down payment in Belgium. A wave of defaults and foreclosures seems unlikely, so it’s a bit disingenuous to talk about a bubble, and that might be the bigger problem.

Recent studies from the KU Leuven suggest that this increase in price is sustainable. Investors have access to capital, and renters are in no short supply. Renters have no other choice, especially considering a dramatic slowing down in the building of social housing in Belgium over the last two decades. People are spending more on rent and mortgages than ever before, but figures reassuringly indicate that only around one in ten Belgians spend more than 40% of their income on living costs.



Skyline of Antwerp. Homeownership rates in Belgium are one of the highest in Europe at 73%. However, with rising prices, people are spending more than ever on mortgages as a percentage of their salaries, making it increasingly difficult for the younger generations to get on the property ladder.

More concerning are figures from the National Bank of Belgium showing that mortgage lending as a percentage of GDP has increased from 20% to 55% in just 10 years. Belgians are borrowing more to own their homes. Normally this wouldn’t be a problem for consumer spending, since ownership costs offset rental costs over a lifetime. But a new phenomenon is emerging. If families are saddled with debt, purchasing power/real income does not increase; housing becomes more expensive, and there is an adverse effect on consumer spending over the long term.

Counterintuitively, Belgium has seen an increase in consumer spending, and that increase has corresponded linearly with increased household debt. We are borrowing more than ever before, and are forced to spend it. While the current government is encouraging less government spending, and less government borrowing, in an attempt to comply with EU debt to GDP standards, the burden is shifting to consumers. It’s difficult to argue that households should bear this shift by being required to borrow more, but that is the economic calculus of contemporary politics.

What Does That Mean for Potential Homeowners?

It means that, aside from minor corrections, investing in the Belgian housing market is said to be a fairly safe investment by many experts. While the prices according to most metrics do not correspond with the value, the market doesn’t seem to be slowing down. What it means for someone looking to start a family is a little different. Whether you’re renting or buying, prepare to spend more of your salary on housing, and prepare to go deeper into debt in order to do it.

This corresponds to a greater shift in economic policy, and what many people refer to as neoliberalism. Governments are attempting to shift the burden and cost of providing services to private enterprises and in time to private citizens. One classic argument against it is that it turns everyday services like telecoms, energy and housing into investment vehicles, owned by private companies that have a legal mandate to extract value from their operations.

How it applies to real estate is that the government reduces its burden to shelter people, by building fewer affordable housing units, insisting that the market propose a solution. If this works, it will create private wealth for homeowners, again around 70% of Belgians, and employment opportunities, albeit limited ones, in the real estate market. Limited because residential real-estate does not perpetually create value for the economy, the way a factory or commercial real-estate does, instead providing a large one-off payment for developers. If this course of action does not work, then households will be squeezed, and the knock-on effects will be felt throughout the economy with the government safety net greatly reduced.

What about the scandal mentioned earlier?

A scandal has been brewing in Belgium over the last couple of years in the property development sector. Joeri Dillens, then chief of staff of Bart De Wever; the head of Belgium’s largest political party, the Flemish nationalist party N-VA, came under fire in 2015 for brokering a real estate deal between the city of Antwerp and the Ogeo fund, a pension fund operated by the city of Liège’s socialist party. The Ogeo fund resold the land to the property development firm The Land Invest Group for twice the purchase price only two weeks later.

The Land Invest Group’s main investors and leadership is made up of a combination of Walloon Socialists, Flemish Liberals and Erik van der Paal; son of a major financier of the Flemish extreme right Vlaams Blok. After the sale was completed, the city of Antwerp (whose mayor at the time was Bart De Wever), changed zoning and building laws in order to allow the Land Invest Group to build high rises, thereby increasing the value of the property innumerably by allowing them to build more residential units.

Critics raged at what they called crony capitalism, but little follow up was done. The scandal erupted again in December of 2017, when Bart De Wever was secretly filmed at Erik van der Paal’s birthday party in the Michelin starred restaurant ‘t Fornuis. As a result, van der Paal sold his Land Invest Group shares.

Rising prices leading to increased demand. Walloon socialists in bed with Flemish separatists, and a real estate market unaffected by a worldwide real estate crash. These are the ingredients to the persistently surreal Belgian real estate market. But what else would you expect from the land of surrealism?

By Alexandre D’hoore