Increased regulation and inflation are changing the playing field
Since 2021, more is being invested in the residential sector than in offices1 globally, confirming that residential is now the most popular investment category. This is mainly because the foundations of this market are very stable. During the COVID-19 pandemic, this segment also proved to be particularly resistant against economic shocks of global proportions.
At the moment however, this relatively safe market poses several challenges for investors. First of all, geopolitical tensions surrounding the war in Ukraine are causing a fragile investment climate. But most prominent at this moment however, is inflation. Although real estate serves as a hedge against inflation due to the possibility of yearly rent increases with the Consumer price index, inflation has the following downsides for investors:
- Construction costs are rising, putting more pressure on the feasibility of new construction projects.
- Increased interest costs, which mean that obtaining loan capital for investments becomes more expensive.
But at least as important in the Netherlands at the moment is further regulation. For example: the restriction of the liberised rental sector that was announced by the Dutch government early May in the “Betaalbaar wonen” (affordable housing) memorandum. The most important measure is the extension of the WWS points system: this system will also apply to rental properties with a starting rent of €1,000 or €1,250* per month max. Additionally, the Dutch government proposed plans to increase the transfer tax from 8% to 10.1%.
This means that the investment climate in the Dutch residential market will change. When we look at other countries, we notice that these changes are not unique to the Netherlands. And wherever there are challenges, there are certainly opportunities too — especially for those with a keen eye. Savills therefore still sees locations in the Netherlands that are strong contenders for residential investments.
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