With the property crisis dragging on, a new trend is emerging: becoming the owner of your home… while leasing the land under a long lease. It is worth understanding this arrangement properly, having so far been largely the preserve of public bodies and professionals.
Are you discouraged by property prices that remain high in the Grand Duchy, when you dream of finally owning the “cosy nest” that will make your family happy? The long lease offers an alternative that may prove a good solution.
But what exactly are we talking about?
It is a very long lease (from 27 to 99 years in the Grand Duchy) that lets you enjoy the property (land or home) “fully” without “fully” owning it. In practice, if you take out this type of lease, you have the right to build and/or maintain a property on land that a third party continues to own. That third party may be a private individual, a developer or a public body.
An agreement (in other words a contract) governs the lease and may include specific provisions to protect each party’s rights.
The advantages of the arrangement
For a family until now renting its flat or house, the arrangement is attractive, because the ground rent paid annually to the owner is all but symbolic: you therefore save the equivalent of the rent.
You do, on the other hand, continue to pay the taxes attached to the property, including property tax.
But the primary advantage of this route into home ownership is that it “separates” the land from the home built on it. In a conventional purchase, all the more so in a region where demand is strong, the overall price includes both. And in Luxembourg, that means the value of the land can account for as much as half the purchase price of the house or flat.
A win-win contract
Choosing to acquire a property through a long lease, including by taking over a lease already under way, therefore allows a substantial saving! All the more so if a clause provides that, at the end of the lease, the “tenant” (in legal jargon, the leaseholder) automatically becomes the full owner. A provision often chosen by bodies dedicated to social or affordable housing.
Unless you are speculating on potential capital gains, including on the land, the long lease therefore offers real advantages, and new players in this segment have even devised additional guarantees: in many cases the tenant is now guaranteed a buy-back price on exit or at the end of the lease.
One last point, which is far from incidental given the long commitment involved: in the event of succession, the long lease forms part of the assets passed on to the heirs.
A way for some to move home at lower cost, for others to shift flats that were no longer finding buyers because of the market crisis, and for public bodies to encourage access to decent housing: could the long lease be the arrangement you have been waiting for to open a new chapter?
A question? On long leases as on all your property projects, do not hesitate to contact seasoned professionals. Contact LUX KREDIT!
THE UPSIDES
The long lease covers bare land
You save the purchase price of the land. You pay a modest annual rent for it. You can have the house you want built, and you will own it outright.
The long lease covers land with a home already built on it, or a flat in a building.
You pay an annual rent (around 5% of the total value). You can carry out improvements that add value (with grants where the works concern energy savings). You can let the property to a third party. In certain cases, the buy-back price of the property is guaranteed by contract.
