OK, so you want to rent out your property. But how much should you charge? Setting the rent is always a difficult balancing act. Go too low and you won’t maximise the return on your investment. Go too high and you risk putting off potential tenants. So, how should you go about it? Is there a law? Are there certain rules you should follow, or can you do as you please? What is the going rate in Luxembourg?
After searching for months, you have finally found a lovely house near to major roads and amenities. You have exchanged contracts and got the packing under way. It’s the start of a new chapter!
While wondering whether to sell your current apartment, you have managed to find a great mortgage deal for your new house. So you decide to rent out your apartment as a way of paying off the new loan. The problem, of course, is that you know exactly what your monthly repayments will be, but you have no idea how much rent you should charge on the apartment. The myLIFE team is here to guide you.
Calculating the maximum rental charge under Luxembourg law
As tempting as it may be, you can’t just do as you please when it comes to charging rent. Just because the mortgage on your new house is expensive doesn’t mean you can rent out your shoebox apartment for EUR5,000 a month! Whether you are renting out an apartment or a house, there are rules that need to be obeyed, including a maximum rental charge.
For an unfurnished property, the rental charge cannot exceed 5% of the capital invested
The law of 21 September 2006 on residential lease agreements, which came into force on 1 November 2006, makes provision for a system for setting rental charges on mid-range properties (i.e. not social or luxury housing) destined for residential use. This law states that the maximum rent shall be determined by the amount of money invested in the property (construction, purchase, renovation), changes in the cost of living, currency devaluation and the age of the building.
- What is the rental cap? For an unfurnished property, the rental charge cannot exceed 5% of the capital invested. Maximum monthly rent = (capital invested x 0.05) / 12. For a fully furnished property, the rental charge cannot be more than double the statutory rent for unfurnished properties.
- How should the capital invested be calculated? The Ministry for Small Businesses, Tourism and Housing determines the capital invested by using the price of the land on which the property is built, the cost of constructing the property (including architects’ and notaries’ fees) and the amount committed for renovations and/or conversions. If the owner was not responsible for building the property, the price that appears in the deed of purchase (plus any related fees) must be taken into account.
- Can you adjust a rental charge? In its French-language publication on new legislation on residential lease agreements, the Ministry of Housing states that the rental charge should also take into account changes in the construction cost and currency devaluation.
Maximum monthly rent =
(remeasured capital invested – reduction)x0.05/12
Although the law of 21 September 2006 makes it illegal to automatically index the rental charge (by tracking the consumer price index, for example), the owner may revise the rental charge upwards based on the revaluation coefficients table. This table, which is available from the Ministries of Housing or Finance, is updated every two years.
The rental charge can also be revised downwards. There is a reduction system for houses built 15 or more years ago. In such a case, the rental charge is reduced by 2% every two years, unless the owner can prove they have incurred equivalent expenses in maintaining or repairing the property.
To summarise, based on a remeasured and discounted capital invested, the maximum monthly rent is calculated as follows for an unfurnished property: Maximum monthly rent = ((remeasured capital invested – reduction) x 0.05)/12.
At what price should you rent out your property in Luxembourg?
Once you have calculated your maximum monthly rent, you can adjust your price based on the size of your property, its location and the rents being charged in your area.
- Rent based on size of property. The Housing Observatory has published the results of a study on rental charges in Luxembourg during the third quarter of 2017, based on the prices observed in property listings. According to the study, the average rent was EUR2,822 per month for a house (EUR14.33/m2/month) and EUR1,469 per month for an apartment (EUR21.25/m2/month). The table below provides a breakdown of rental charges by property size.
- Rent based on location of property. Prices vary considerably from one town or city to the next, and even from one district to the next. There is a huge difference in the rent on a home located in Luxembourg’s capital and the rent on a home in a commune in the north or west of the country.
The further you get from the capital, the lower the prices.
Rent in Luxembourg City is among the highest. According to the Housing Observatory, the average rental charge here is EUR 3,835 per month (EUR 17.69/m2/month) for a house and EUR 1,710 per month (EUR 25.37/m2/month) for an apartment. The Centre-South region as a whole has the highest rents (EUR 3,301 per month on average for a house and EUR 1,659 per month on average for an apartment).
The further you get from the capital, the lower the prices. The Centre-North region of Luxembourg (Mersch, Ettelbruck, Diekirch) offers the lowest rent for houses, at an average of EUR2,254 per month. The cheapest apartments can be found in the West region (Rédange, Wiltz, Esch-sur-Sûre), with average rental charges of EUR963 per month.
You now have all the information you need to set the rental charge for your property. If you are still unsure, take a look at the prices for houses and apartments, by size and location, on the website of the Housing Observatory. Good luck!