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Friday, 7 October 2011

Reducing the conveyance duty on Dutch house sales had the effect that I expected: very limited. NVM blames the market circumstances, I blame the housing prices.

Yesterday, Thursday October 6, the Dutch association of realtors NVM presented its quarterly review. I looked at this review with even more interest than normally, as this quarter the government reduced the conveyance duty on housing sales by 66% to 2% of the transaction price, instead of 6%.

The government, all stakeholders in the housing market and many pundits predicted that this would reopen the locked tight Dutch housing market. I predicted that it wouldn’t matter at all.

It is my opinion that Dutch houses are still overpriced by 20-30%. In that situation, deducting 4% from the gross sales price won’t matter at all. Since the credit crisis broke out at the end of 2008, the prices of houses have already lowered by an estimated 8-10%. And the housing market is still locked tight…

People that want to sell a residential house, offer sometimes even discounts of 15-20% on their initial sales price. But almost nobody wants to have their house, anyway. Because it’s still too expensive.

And then the Dutch government thinks that a lousy 4% deduction via the conveyance duty will matter? Get a life!

I have to admit: I was wrong with my prediction that it wouldn’t matter at all. But, the government, stakeholders and pundits were much more wrong with their prediction that it would unlock the Dutch housing market.

There has been some improvement of sales, but it was a disappointing 4% in Q3, where the NVM expected a 10% increase. And it was almost exclusively in the month of July. In the months August and September, housing sales again lagged. From the quarterly review of the Dutch housing market by the NVM, I show here the most important parts:

Reduction of conveyance duty had a positive effect, but, as a consequence of the low consumer confidence, buyers were still shy.

In Q3, 2011 the Dutch housing market experienced a rise of 4% in the transaction numbers YoY. The number of houses sold was 30,600. The reduction of the conveyance duty led to an immediate recovery of the number of house sales, but this increase didn’t continue in the months afterwards. Especially in September, sales were disappointing.

The NVM blames the recovery staying off to the diminished consumer confidence in August.

The uncertain financial climate, the imminent recession and the Euro-crisis make consumers reserved. The price of the average sold house dropped by 1.1% to €231,000 .

 The number of transactions increased by 4% YoY. Nevertheless the NVM is disappointed, as the association reckoned with an increase of 10%.

According to Ger Hukker, chairman of the NVM:’The lower conveyance duty had definitely a positive effect. However, some potential buyers were deterred by the bad economic news and postponed their decision to buy a house. But, when this measure would not have been introduced, the housing market would have been in a worse situation’.

The total number of housing sales was 30,600. All categories of houses had improved sales, YoY, but family houses and condominiums profited most: 5%.

In Q3 the price of an average sold house decreased by 1.1%,Quarter-on-Quarter. The value of a corner houses decreased most, with 1.8%, while condo’s also showed a decrease of 1.6%. Family houses and duplex houses had very limited price decreases with repectively 0.7% and 0.4%. The price of an average house also decreased year on year: by 2.1%
According to NVM-chairman Hukker, many houses are for sale at an excessive price. Sellers are damaging themselves by this: ‘In this market, there is no place for dreamers, but only for realistic people. Due to the large supply of houses for sale, excessively priced houses are ignored by potential buyers and thus won’t be sold.

Buyers buy with the hand-brake on, especially due to the stricter lending rules for banks, the pressure on incomes, the increasing healthcare costs, municipal taxes and energy costs.

The average time for sale of a house increased to 135 days, compared to 123 days in Q3, 2010

For a realtors organization, it is a quite realistic report and it is a good read for everybody that understands Dutch.

Two things the report doesn’t address, however, the phenomena of Peak Housing Prices and the fact that many sellers are held hostage by their way too high mortgage, while their house is in reality underwater.

Concerning the former: Many people involved in the housing business still act like the current (slowly) dropping prices are just a temporary setback and everything will be fine in a few months or years.

I seriously doubt that. I think that in 2006 a price level was reached that I describe as: Peak Housing Prices. At this price level, the majority of Dutch potential house-buyers couldn´t or wouldn´t buy a house anymore, when they were not desperately in need of a new house. Sales started to drop, a year later followed by housing prices (see the previous link).

Since then, the housing market is locked tight and this process has not halted yet. And it won’t halt before the housing prices have significantly dropped. In my opinion by at least 30%, compared to peak prices in 2006. This is still at least 20% away.

And concerning the mortgage: Most people that sell their house would be willing to lower their price, if they were not held hostage by their excessive mortgage. Almost nobody is willing to accept a residue debt of €50,000 - €100,000 after selling their house, as this promises ten to twenty years of financial misery in The Netherlands.

The only categories that must do so are:
·         People that are going through a divorce and must sell their former house
·         People that lost their job and really cannot afford their house anymore.

All the others moan and wait (in vain) until the housing market improves. And that might take a long while.

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