Luxembourg’s real estate market in 2025 was defined by volatility, fiscal cliff effects, and persistent supply shortages, creating both headaches and opportunities for buyers and investors.
Fiscal cliff effect
A defining theme of 2025 was the on-again, off-again tax regime. Measures designed to stimulate investment—such as a 50% reduction in the tax base for registration duties, a €40,000 “Bëllegen Akt” tax credit for primary residences, and an accelerated 6% depreciation rate for new energy-efficient residential projects, saw deadlines extended to on or around 30 June.
Once these incentives lapsed, the market became stop-start. Buyers and investors rushed to finalise transactions before the cutoff, creating a notable surge in activity in the first half of the year. For investors, this presented both opportunities and challenges: while it temporarily boosted volumes, it also distorted price signals and market expectations.
Mixed signals
The surge in activity in H1, driven by fiscal incentives, created confusing pricing signals. House prices dropped -3.1% in Q3 across all sectors, according to government data. Despite this quarterly correction, annual figures remain positive, with prices up +1.2% year-on-year.
Q3’s figures are further complicated by the fact that some transactions were driven by the temporary extension of the notarial deed deadline to 30 September. Government officials, however, interpret the data as a sign of an emerging market recovery, suggesting that demand remains robust even amid policy uncertainty.
Housing supply shortage
Supply continues to lag behind demand in Luxembourg. Construction permits declined in the first half of 2025, with just 1,579 permits issued for new homes, according to the housing ministry. Job losses in the construction sector in 2024, around 4,600 positions, according to Paul Nathan, Vice-President of the Chamber of Skilled Trades and Crafts—further constrained output.
High interest rates combined with a 20% deposit requirement on new builds paralysed off-plan sales, particularly for investors. Analysts estimate that Luxembourg would need roughly 4,500–5,000 new homes annually to meet population growth, a target still far from being reached.
For investors, this persistent undersupply points to long-term opportunities in residential development, despite short-term hurdles.
Weakened buyer power
High borrowing costs, stemming from the European Central Bank’s anti-inflation measures, continued to limit buyer affordability in 2025. Many prospective homeowners turned to rental markets instead, reinforcing demand there.
Public disputes
Unexpected disruptions also emerged in the market. At the end of 2025, dozens of real estate agencies boycotted a popular aggregation platform in Luxembourg over a pricing dispute, according to Lux Times. The rift highlights growing dissatisfaction with market structures and value distribution, a reminder that structural challenges extend beyond supply and demand.
Commercial real estate
Despite turbulence in the residential sector, Luxembourg’s commercial real estate market performed strongly. CBRE Luxembourg reported revenue exceeding €9 million, marking its second-best performance since establishing operations in the country.
Office leasing, occupier advisory, and retail leasing all contributed, with the largest office lease of the year signed by JP Morgan for 14,000 square meters at the Waves office in Kirchberg. The transaction underscores sustained demand for Grade A office spaces in Luxembourg’s financial district.
Looking ahead
Luxembourg’s 2025 real estate story was one of contrasts: a stop-start residential market, constrained supply, and strong commercial performance. For investors, navigating fiscal deadlines, affordability challenges, and supply shortages will be key to identifying strategic opportunities.
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