Economy and demographics
Main economic indicators show improvement
The Dutch economy is projected to grow by 1.5% in 2015. The modest economic growth projected for 2015 is partly due to increased household consumption and a rise in business investments. The main negative uncertainties relate to events outside the Netherlands. Geopolitical tensions in various places around the world pose a risk to the global economy. Consumer confidence is higher than a year ago, but sentiment is still cautious.
Low inflation continues
Inflation will remain low at 1.0% in 2015. The Dutch Central Planning Bureau (CPB) is also projecting an increase in median purchasing power of 1.5% following four years of decline. Median household purchasing power is set to improve by 0.75% this year.
Randstad ‘winner’ of changing demographics
The number of inhabitants in the Netherlands will continue to grow in the decades ahead. The current 16.8 million people will increase to 17.4 million in 2025 and 17.8 million in 2040. The majority of the growth will be in people above the age of 65. Bouwinvest focuses on Dutch regions with above-average demographic (and economic) growth. The major cities of the Randstad urban conurbation will see relatively higher growth, in line with the urbanisation trend.
Trends and developments in the residential market
House prices have bottomed out and are on the rise
House prices declined 18% in the period 2008-2014. In 2014, house prices increased by 3.5% to an average of € 215,000 (source: NVM, the Dutch real estate agents association). Political uncertainty has lessened and housing affordability has increased considerably as prices have declined, mortgage interest rates decreased, transfer taxes have been reduced and incomes remained relatively stable.
Healthy long-term outlook for liberalised rental sector
The long-term outlook for the Dutch residential investment market is promising. There is already a qualitative and quantitative housing shortage, which is increasing due to lagging housing production. The cuts in subsidies in the owner-occupier market and in the regulated rental sector has made the liberalised rental sector more competitive. There is a continuing demand for affordable rental accommodation, especially in the larger cities.
Growing demand for single-person rental housing units in large cities
The four major cities together will account for one-third of expected future population growth, due to ongoing urbanisation. The number of households is expected to grow even more quickly, as average household size continues to decline. Demand for single-person rental homes is strong and growing, especially in the large (and some medium-sized) cities. Shortages are high, especially in Amsterdam, Utrecht and Haarlem.
Increasing investments in the residential market
Last year saw a marked upturn in investment in the Dutch residential market. Total investments in residential real estate increased to € 2.1 billion in 2014, up from € 1.1 billion the previous year. A record of roughly 25% of total investment was allocated to residential. Even during the worst years of recent financial and economic crises, residential real estate investments have remained surprisingly steady at around € 1 billion per year. Under pressure from the turmoil on the owner-occupier market, yields have increased in recent years and are now seen as attractive. However, due to fierce investor competition yields are now experiencing downward pressure.
Implications for residential real estate
Liquidity in investment market up, pricing attractive
Liquidity in the residential real estate investment market is probably at its highest point since the onset of the 2008 crisis and showed a big year-on-year increase in 2014. Last year saw a marked increase in the number of new investors, both institutional and private. While Dutch residential real estate investments are still dominated by domestic players, foreign investors have successfully entered the Dutch market.
Implications for the Residential Fund
- More (potential) demand for liberalised rental houses.
- Randstad and inner-city areas most attractive.
- Growing demand for single-person rental housing units in the large cities.
- Long-term investment potential and increased competition.