Residential

Rising financing costs and uncertainty around rent regulation made last year a difficult one for residential investments. With a volume of €1.9 billion, this category lagged far behind the volumes achieved in previous years. For instance, only €1.1 billion was invested in new construction – a reduction of 59% compared to 2022. The investment volume in existing buildings was higher compared to last year, totalling €818 million. Side note to these figures, it is worth noting that no less than 57% of these existing buildings were bought by organisations whose strategy involved buying with a view to selling off the individual units separately. These houses will therefore disappear from the rental market over time. On the other hand, the likelihood of falling financing rates in the second half of this year offers the prospect of more activity amongst investors. We therefore expect an investment volume of €2.5 billion, up slightly from 2023.

Trends and developments

• Rising wages and a slight declining interest rates will increase private individuals’ borrowing capacity in 2024. While vacant possession values will increase, capital values continue to fall, mainly due to high financing costs. Over time, this will lead to bids of investors with a strategy that involves selling off individual units separately will get the upper hand during transactions. The business case for exploiting real estate is expected to improve vis-à-vis this strategy if capital values stabilise during 2024.
• With the persistent housing shortage and stability of rental income flows, there is still interest in residential investment, especially in the affordable rental segments. However, this interest will still be somewhat suppressed in the first half of this year due to the difference in the price expectations of buyers versus sellers. If capital market and government bond yields fall during the year, this will boost investors’ allocation in residential real estate. At the same time, consumer demand for ‘living as a service’ is growing, prompting an expansion of investment strategies to include operational residential real estate. Think of, student housing, co-living, short stays and care homes.
• Some property developers are at risk of defaulting over time. This is particularly the case for projects with relatively short-term financing, combined with declining cash flow from acquired real estate. This may result in developers deciding not to proceed with projects that may end up with higher financing costs than capital values in the event of increased refinancing costs. If capital values fall sufficiently, other organisations may well revive these developments.
• Municipalities still tend to be inflexible when it comes to housing requirements and the price of land. To get construction going again, a more flexible attitude would help considerably. This could include less stringent programming criteria for issues like social rent and the proportion of rental housing versus owner-occupied housing. Updating residual land prices faster, like the City of Amsterdam is doing for instance, could also win over more projects.

Residential analysis

In previous years, the exploitation strategy prevailed in bidding processes for existing housing portfolios, partly due to low interest rates. With vacant possession values picking up again after a short-lived decline, individual sell-offs offer attractive margins in the foreseeable future. For instance, we have witnessed that most of the transactions in 2022 and 2023 were done based on an individual sell-offs strategy. It should be noted here that this strategy suits investors with a long-term investment horizon. For investors with shorter investment terms, falling tenant turnover rates, additional regulations and volatile house prices in the Netherlands may hinder a quick exit.