A recent report from ING analysts shows that things are not as bad as they seem. However, although the analysis is hopeful, it remains to be seen whether a stabilization and recovery will follow. The ubiquitous scarcity of rental properties and logistics real estate could contribute to this in the near future. First, though, let’s look at the status quo.
To explain the situation: the total value of all investment transactions (or: investment volume) within the real estate market was half as high in 2022 as in 2023. For transactions worth €100 million and more, this percentage was even higher – approximately 70% . This is evident from measurements by CBRE, the largest commercial real estate advisor in the world. The number of transactions even reached a 10-year low. Where is the problem?
First, interest. Mortgage interest rates are currently around 5%, which is a significant increase compared to a year and a half ago. Naturally, this makes it less attractive and simply more expensive to finance a home for potential buyers.
Second, transfer tax. That’s a blessing in disguise – the percentage of this tax will not have been increased in 2024. Nevertheless, it remains quite high; we are talking about the 10.4% rate for real estate investors, so a significant jump of 2%.
Thirdly, uncertainty surrounding rental properties. This is mainly due to a proposal from outgoing housing minister Hugo de Jonge. The office holder has suggested that private sector rental properties should partly fall under the new regulations. In practice, this means that 25% of the rental properties of the aforementioned real estate investor, Eres, would have to be subject to the new rules. It is also not without consequences that subdistrict courts have made a number of rulings on unfair rent increases by real estate investors.
Fourth, fictitious return in box 3. This brings us back to the tax issues. Although the fixed return that applies to box 3, i.e. capital gains tax, has fallen to 6.04% in 2024, this percentage does not correspond to the actual returns achieved. For equity investors, a return of 5% would be profitable, but this did not work for 10% of the rental properties examined by the Ministry of Finance.
Fifth, wealth tax. As the old saying goes, there are only two certainties in life: death and taxes. However, it does not help that the wealth tax to be levied on that fictitious return is 36% instead of 32%.
Despite the bumps in the road, the commercial real estate market remains prepared for the future. But we still have to wait and see what happens.
