You are currently viewing Four comments on the announced wave of individual sales

Four comments on the announced wave of individual sales

What investors have been warning about for a long time has now been substantiated by figures from the Kadaster: the individualization of privately rented homes has begun. However, this picture deserves some nuance.

For almost two years now, private housing investors in particular have been claiming that an accumulation of measures threatens to make the operation of rental homes unprofitableThat did not result in much media attention, outside the trade press. Only a handful of journalists were present at Vastgoed Belang’s somewhat tumultuous annual conference, which was almost entirely devoted to the regulatory plans. But now that investors are slowly putting their money where their mouth is, private investors are making headlines in the national newspapers. The announced wave of individual sales seems to have started, that is the tenor.

This is also the conclusion of the Volkskrant, which asked the Land Registry to find out how many former investment homes were put up for sale last year. The numbers paint an interesting picture. But there is (yet) no question of a true outpouring. A few notes on the numbers.

1. Selling off individual units mainly takes place in the major cities

In the four major cities (G4), 7 percent of all homes sold in the fourth quarter of 2022 were transferred from an investor to an owner-occupier, according to figures from the Kadaster. Amsterdam takes the cake with 9 percent, followed by The Hague with 7.3 percent. Throughout 2022, private investors sold more than 1,700 investment properties in the G4.

By way of comparison: across the Netherlands as a whole, the share-out percentage was less than 3.5 percent in the last three months of last year.

The reasons for this are obvious. House prices are higher in the major cities, and so are investors’ investments. For a healthy return, rents in the G4 are logically higher than elsewhere. Housing minister De Jonge thinks a rent of 1,500 euros for a small apartment in the center of Amsterdam is an excess that needs to be addressed. Now that is indeed a lot of money, but given the location and investments made, it is in line with the market.

The government measures therefore mainly affect private sector homes with a high WOZ value, i.e. mainly homes in the major cities. That is why the WOZ value has been capped at 33 percent, otherwise they often fall into the free sector there. The regulation therefore only affects a part of the free sector, which itself is not very large. The wave of individual sales can certainly continue, but it will remain geographically limited.

2. Starters seize their chance now. And they already did

Last year, 61 percent of investment homes sold in the G4 went to first-time buyers, the Kadaster calculated. In the Netherlands as a whole, this percentage is 47 percent. These figures suit De Jonge well. Investor influence is being pushed back in favor of the troubled starters, who have so often been left behind in recent years.

First-time buyers are also affected by the high mortgage interest, but they have nothing to sell and do not run the risk of double costs. We also see this in the figures. 54 percent of all homes sold in the G4 went to a starter. In the Netherlands as a whole, this is 40 percent. Due to the market conditions, the share of starters in the number of homes sold is quite large anyway. Not only because investors are separating out, but mainly because those moving on are neglecting it.

In addition, young starters have been receiving tax benefits for more than two years. They pay 0 percent transfer tax, while investors since this year pay 10.4 percent. Competition in the housing market from private investors has also largely disappeared due to the purchase protection that practically every city of any size has introduced.

3. It is mainly small investors who are dropping out

Call an investor and there is a good chance that he/she thinks that the residential investment market is being killed. And given the proposed regulations (see point four), they have a point. Yet it is mainly the small private investors who are hit hardest and are the first to leave the market. Value decreases, lower rental income and a possible refinancing round have a greater impact on them than on investors with a larger portfolio. And we see that in the numbers.

We mainly find investors who sell property among the ‘little ones’ – defined by the Kadaster as investors with a portfolio of nine properties or less. These are generally non-professional investors. Many private individuals also invest money in real estate as pension insurance. If all this is jeopardized, a small investor is faced with a choice: separate out or continue to operate.

Last year, private investors sold 781 homes in Amsterdam alone. 667 of them were small investors. The same picture is also seen in Rotterdam, The Hague and Utrecht. About 90 percent of the rented properties sold came from the portfolio of small investors. In Amsterdam, just over half of private investors would consider selling their property, or are already actively doing so, says the Makelaars Vereniging Amsterdam (MVA). It is no coincidence that these are investors with one or two properties in their portfolios.

This ‘shake out’ also has an advantage, according to larger, professional investors. The ‘opportunists’, once lured by low-interest rates and high yields, who wanted to make money quickly, are rapidly disappearing from the market. Most of the excesses would therefore take place in this undefined group of investors, which quickly found their way to the national media and politicians. Stories of sky-high rents for poorly maintained homes are common knowledge but are not indicative of the private rental sector as a whole.

4. Many regulations are not final yet

The unrest among small residential investors in particular is understandable. For example, in addition to the mid-market rental regulation, the bridging scheme box 3 is also pending and there is a bill to ban temporary rental contracts. But none of those measures is a fait accompli. Yet the market reacts as if the argument has already been settled. An institutional party such as Heimstaden says it is being steered towards individualization with a firm handVastgoed Belang sees investors move abroad in the hope of finding a ‘reliable’ government and an attractive investment climate there.

In practice, they anticipate what may be to come. But in the meantime time does not stand still. As a result of individualization, (mid-range) rental properties are also disappearing from the market, precisely where they are most needed. De Jonge does not mind if investors sell out ‘because there is also a shortage on the owner-occupied market’. But not everyone can and wants to buy. It is not for nothing that advisory bodies such as De Nederlandsche Bank and the Central Planning Bureau have pointed out these dangers to the minister.

The chance that De Jonge and State Secretary Van Rij of Finance withdraw their plans is nil. But whether the bills as they are now being fully implemented is another storyThe bills still have to go through the Senate, where the cabinet still has quite a bit of work to do after the Provincial Council elections to achieve a majority.

Until now, it has mainly been the small investors who anticipate the plans and draw their conclusions before they are implemented. They don’t do that for nothing. In the end, the most are at stake for them and that is also apparent from the Kadaster’s figures.

Only when the larger investors come to the same conclusion, there will be a wave of sales. It’s not that far yet. But you can ask yourself what will still be needed if the planned regulations are actually introduced. A repeat study by the Land Registry into individual investors would provide more clarity in about a year than now.