The Luxembourg property market looks attractive to investors. But this enthusiasm should be tempered and take account of the associated risks. Etienne Planchard, Member of the Management Committee and Head of Loans and Credit, describes the key risks.

What do you need to watch out for?

There is no such thing as a risk-free investment and property is no exception. Aside from the potential benefits, investors considering buying property to let should factor in all the risks and setbacks that could arise in relation to the investment:

1. Tenant turnover: this is affected by criteria such as the size of the property, its location, the price, whether furnished or unfurnished, the safety of the area, proximity to public transport and shops, nearby schools, nurseries or universities... These criteria will have an impact on how easy it is to find potential tenants. However, there are bound to be times when the property is empty for a month or two and this has to be taken into account in your calculations. Any such gaps in rental income will have a direct effect on the property's profitability. In addition, it is advisable to maintain the property to a high standard as the turnover rate is much higher for a property in poor condition. And the quality of the property will determine the quality of the tenants.
2. Risk of late payment of rent or default: this is an inevitable risk, due to such events as the tenant's loss of employment, excess debt, change in family situation, etc. It is therefore preferable to have other sources of income to tide you over and offset a temporary loss of income. 
3. The illiquid nature of property: you have to accept that investing in property entails tying up the money for the long term. It takes time to sell a property and if a quick sale is needed, it could mean having to accept a significant cut in price.
4. Fall in property prices: there is no guarantee that property prices will continue to rise. Here too, the choice of location, in an area with strong demand for rental property, is the best protection for this type of investment. A fall in property prices could have a direct impact:

• if the investor wants to sell the property and therefore run the risk of accepting a lower price than expected
• if a tenant finds out that there are similar rental properties cheaper elsewhere, he might change his mind and decide to move, leading to a gap in rental income.

As every situation is different, our credit specialists analyse all the tax, asset, financial and personal aspects to ensure that the solution they offer is ideal for your individual situation.

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Further publications about investing in property coming soon on the blog.