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Report of the Board of Directors

Market developments and trends

Economy and demographics

Leading economic indicators have improved

The economic outlook for the Netherlands has improved strongly in recent times. Forecasts show that the Dutch economy is set to book a healthy growth of around 2.0% per year. Employment levels are also set to rise by approximately 1% annually, while consumer confidence is higher than a year ago. Persistently low inflation is expected to boost consumer spending more than 1.5% annually. The improved economic outlook creates a solid foundation for the Dutch real estate market.

Population growth continues

Recent decades have seen strong population growth and it is expected to continue in the coming years. The total population and the number of households are expected to continue growing until 2040, stimulating overall consumer spending. The current population is expected to increase from 16.9 to 17.2 million, while the number of households is set to rise to from 7.7 to 8.0 million by 2020.

Trends and developments in the residential market

Strong demand for Dutch investments

In addition to the increased activity of Dutch investors, the amount of foreign capital from international investors has grown dramatically in recent years. In fact, the majority of real estate investments in the Netherlands now come from international investors. While real estate prices in other key markets such as London, Paris and Munich have already increased, Dutch markets are still attractively priced. However, the continuing interest of both Dutch and international investors is quickly pushing up prices. This trend is expected to continue in the coming years.

Quantitative gap - Urbanisation

The Dutch residential real estate market is also characterised by marked regional differences in housing demand, with the heaviest demand concentrated in regions with a healthy economic and demographic outlook. Population growth and the increase in the number of households is expected to be well above the national average in certain ‘core’ regions, such as the Randstad urban conurbation (Amsterdam, Utrecht, Haarlem, Rotterdam and The Hague) and the Brabantstad conurbation (Breda, Eindhoven, Helmond, Den Bosch and Tilburg). However, the population and housing demand is expected to fall in some peripheral regions in the north and east of the country. On balance, the quantitative housing shortage will continue to increase, partly due to the relatively small number of new homes being built. The resultant gap between supply and demand will continue to put pressure on the market.

Qualitative mismatch – Single-person households and elderly are changing the market

In addition to the quantitative shortage, the qualitative gap between housing supply and demand is also set to widen, due in part to the increasing number of smaller households and the ageing population. Starters moving into their first home will find it increasingly difficult to enter the owner-occupier market, due to persistently low levels of ready financing, and they will be looking for good quality rental property. In addition, residential rental market investments are set to benefit from the rising number of retirees, especially those living in the larger cities, selling their existing properties and renting smaller, higher-quality homes. Demand is also set to increase for so-called lifecycle-proof housing developments built or refurbished according to a wide range of sustainability-related criteria, including energy use and general liveability.

Government measures in favour of rental market

Recent Dutch government reforms of the residential market have created a more level playing field and the liberalised rental sector is now in a much more competitive position vis-a-vis the owner-occupier and regulated rental markets. The changes are beneficial for investors in residential real estate. The government has imposed a tax on the regulated sector of the residential market and housing associations are now much more focused on their core task, renting out regulated homes to lower income households. The owner-occupier market is still heavily subsidised due to the generous tax relief on mortgage interest in the Netherlands, but the phased reduction of tax relief on mortgage interest will also help boost demand from starters for rental homes. The reforms have already led to an increase in demand for liberalised sector rental homes, which is increasing the opportunities for institutional investors in this segment of the rental market. 

Liberalised rental segment most attractive

A mere 4% of the total Dutch housing stock is in the liberalised rental sector. Properties in this sector are not subject to any maximum rent level and annual rent increases are also freely determined. Together with its very low vacancy levels, this makes the residential sector the most attractive market for institutional investors. The liberalised sector may be a small segment of the market right now, but demand is growing steadily. As fewer people are willing or able to enter the owner-occupier market, either because of the difficulty in obtaining financing or the need for flexibility, demand for liberalised rental homes is expected to double in the next thirty years, especially in the larger cities with rental levels between € 711 and € 1,250.

Sub-prime markets back on the radar

As the fundamentals for the Dutch residential market have recovered swiftly, interest from both national and international institutional investors is exceedingly high at the moment. Consequently, yield shifts have pushed prices up, especially for prime products in the core regions. Thanks to the high levels of competition, investors have now broadened their view to include sub-prime locations. It is therefore expected that the sub-prime markets will develop in line with the top of the market in the near future, albeit to a lesser extent.

Implications for residential real estate

Increased demand for liberalised sector homes

The above-mentioned trends will lead to increased demand for homes in the liberalised rental sector, especially in the larger cities of the Netherlands, as the four major cities together of the Randstad urban conurbation 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.

Liquidity in investment market up

Investment and liquidity in the residential real estate investment market is currently at its highest point since the onset of the 2008 crisis and once again showed a big year-on-year increase in 2015. Last year saw a marked increase in the number of new investors, both institutional and private. While domestic players still account for the bulk of Dutch residential real estate investments, foreign investors have successfully entered the Dutch market and their share of the market is set to increase in the years ahead. This is likely to lead to increased competition for attractive investment properties and result in continued yield compression. However, this will also have a positive impact on portfolio valuations and boost indirect returns.

Implications for the Residential Fund

  • Increasing demand for liberalised rental houses

  • Growing demand for single-person rental housing units in the large cities

  • Foreign investors set to play a greater role in Dutch residential market

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