The real estate development market - Belgium

1.2 The global market

Global professional real estate investment market World, **-**** Source: ****

The real estate market, which includes real estate development, is mainly driven by the United States (***), Japan, the United Kingdom, Chinagermany, france, Hong Kong, and Canada, according to MSCI.

Size comparison of major real estate markets World, ****, in billions of US dollars Source: ****

According to Pierre Papier in ****, ** cities accounted for **% of the world's commercial real estate market, with New York in first place. Among the top **, ** cities are in North America, * in Europe, and * in Asia.

Today at the European level, we can distinguish certain cities that carry this economy:

The ** most active markets in Europe Europe, ****, in billions of euros Source: ****

We can see that German cities (***) account for more than **% of the top ** European markets for real estate investment in ****. The only Belgian city to be found in this ranking is Brussels, in **th place.

1.3 The Belgian market

According to Immoweb, there are *,*** real estate developers and builders in Belgium, offering a total of *,*** properties as of October ****. Although there are a large number of real estate developers, the majority of the market is concentrated in the hands of a small number of players. In the Brussels region, for example, the **% of the largest companies account for **% of the housing starts. [***]

Evolution of the turnover of real estate development activities (***) Belgium, ****-****, in billion euros Source: ****

From **** to ****, the turnover of the real estate development sector has thus evolved rather unevenly, with fluctuations that reflect a certain instability or at least inconsistency in the market, but it was larger in **** than in ****, so it turns out that these fluctuations are ultimately indicative of market growth.

House price index by quarter Belgium, ****-****, Base *** in **** Source: ****

Real estate prices in Belgium have therefore continued to rise in recent years, with the price index having grown by more than **% in * years, and the health crisis will not have slowed this trend in ****. However, for ****, according to Look&Fin, experts agree that prices should have a slight downward trend. It remains to be seen what will happen once the economic outlook has ...

1.4 The impact of the Covid-19 health crisis on real estate development

As the activity of real estate developers depends in part on the construction of new homes on the territory, which allows them to make sales, a drop in the number of homes built and difficulties in the construction industry inevitably have consequences on the real estate development market in Belgium. The table below illustrates the importance that this crisis has had on the sector in ****.

Economic impact of delays due to the Covid-** crisisBelgium, ****

Alexandra François-Cuxac, president of the Federation of Real Estate Developers, said that "**% of construction sites of collective housing or grouped houses have been stopped" in France because of the confinements and Covid-**. It reveals that the sector of activity of the real estate promotion was brutally and suddenly impacted by the crisis and this in many European countries. Even if it was still possible to telework for administrative and accounting functions, this proved to be more complex, for example, for land planning, i.e. the development of new projects.in the case of land planning. For example, it was more difficult to develop future projects because the municipal land and planning departments were closed for a long period of time.[***]

2.1 Determinants of demand

According to La Chronique, the main desires of residential buyers are to live in an individual home, with more space, close to shops, transport, places to live and work, to be able to respect their budgetary constraints, to acquire an energy-efficient home, and to have support services for their purchase. To meet these motivations, real estate developers are focusing on cities, offering support services, and building low-energy housing. Many factors determine the volume of activity in the real estate development sector.

The mortgage rate

The reference rate on which the rate for variable-rate loans with annual reviews is calculated is currently negative (***), which makes investing in real estate very attractive for individuals and companies. Over the past ** years, borrowing in Belgium has never been so cheap.

Reference rate for variable rate mortgages Belgium, December **** - July ****, in % Source: ****

Subsidies offered by the Belgian government

A number of subsidies are available to private individuals for the purchase of their home or for their loan. Thus, in Wallonia, there are major processes that facilitate access to property:

The SWCS (***) at fixed rates for periods ranging from * to ** years. When buying a property sold by the public sector by mutual agreement or public sale, ...

2.2 The demand for a building permit

In order to better characterize the demand for real estate development activity, we use the statistics of the national institute Statbel. These statistics provide us with information on building permit applications, an essential step in a real estate project. The evolution of the number of permit applications allows us to indirectly estimate the demand for real estate developers.

In ****, there were **,*** authorized building permits in Belgium (***). So, there are now more new construction permits than renovation permits, which is quite a change from the pre-**** numbers, where the number of renovation permits far outnumbered new construction permits. This is largely due to the strong evolution in recent years of new nonresidential building creation, as illustrated in the *nd graph below.

It can be seen that this growth in the number of building permits is increasingly favorable to real estate developers, whose model is based more on construction than renovation.

Evolution of the number of authorized building permits, in residential buildings Belgium, ****- ****, in thousands Source: ****

Evolution of the number of authorized building permits, in non-residential buildings Belgium, ****- ****, in thousands Source: ****

The Statbel statistical data allows us to characterize demand by region, again using the number of building permits. We detail ...

3.1 A dynamic market that benefits from innovations

According to several barometers and surveys, real estate professionals are increasingly optimistic. Indeed, the optimism rate for all professions combined has risen from **% in **** to **% in ****. It is notable, however, that only the optimism rate for real estate developers and developers is down very slightly.

Given that the real estate developer business is not experiencing strong growth, many players are expanding into new markets. The main ones are services for residences (***), and asset management.

Real estate crowdfunding is a new method of financing that is beginning to appear in order to supplement the equity contribution of real estate developers. Various platforms offer this type of financing, including Lymo, Wiseed, and Anaxago.

The *D virtual tour is becoming more and more popular. New technologies have made it possible to improve the customer experience, particularly via virtual reality headsets. Many real estate developers have started to develop offers in this direction. According to Bien ici, this saves time for future buyers, who visit an average of * homes before finding the one that suits them.

The real estate development sector is also impacted by the development of intermediation platforms. They bring value to customers by centralizing their searches. Bouygues Immobilier notably opened the Valorissimo ...

3.2 The value chain

The real estate developer is not isolated: the act of real estate development requires the intervention of many actors upstream of the project, during it, and downstream. The main ones are the following:

The project owner. This is the project sponsor, the one who defines the specifications. In the construction industry, project owners can be households, the State and local authorities, social landlords, or the developers themselves. The project manager. This is the entity in charge of the design of the project, the one who follows the works and coordinates the trades. They need the intervention of architectural firms, technical design offices, surveyors... Construction companies. They intervene once the design is completed. They take care of the masonry, the envelope, the frame, the carpentry, the insulation, the electricity, the heating... The final customers. The final customer can be the owner in the case of the construction of an individual house for example, but otherwise the final customers are generally households, companies, the State, real estate companies...

3.3 Development of a real estate operation

The criteria for success are rapid marketing and, above all, the conformity of the final result with the budget forecasts. For this, a real estate development operation always follows the same steps:

Launching the project after studying the opportunities Control of the land on which the project will be carried out Study of the technical, financial and commercial feasibility of the project Construction of the project, which includes both the architectural studies, the collection of construction permits, and the construction itself Marketing of the project by finding a buyer or buyers Completion and delivery of the project The completion phase of the project takes an average of ** to ** months, but the duration can vary greatly depending on the scope of the work to be done and the obstacles that may slow down its progress.

3.4 Financing of a real estate development operation

Real estate development projects can take a long time to get off the ground, and the revenue generated usually comes quite late, so it is necessary to find financing to complete these projects. According to Find and Fund, there are * main sources of financing, with a new one added:

The pre-sale of housing or buildings for companies constitutes about **% of the total financing. Bank financing constitutes **-**% of the total financing. The contribution in own funds constitutes **-**% of the total financing. This personal contribution is a condition imposed by the banks Real estate crowdfunding is emerging, but remains a minority. It makes it possible to supplement the equity contribution.

Typical composition of financing for a real estate development project Belgium, ****, as a % Source: ****

4.1 Services offered

A real estate developer is mainly aimed at individuals, investors and companies with a real estate project. Generally, the developer offers real estate development services, but also many other services surrounding their core business.

In terms of real estate development, they propose contracts :

Of Sale in Future State of Completion (***): in this case, the purchaser will become owner of the ground once signed the sale contract, then owner of the housing during its construction. Real Estate Development: a mandate obliges the real estate developer, for a price agreed with the client, to carry out a building construction program as well as to carry out or have carried out all the activities necessary for the construction.

There are also other more specific contracts, such as the co-development of assets, the leasing contract (***)...

Developers can also offer the following services :

Property Management: rental and technical management, as well as administrative and legal follow-up of real estate assets. Consulting and Transaction: advice to companies or individuals on their real estate investment strategies. Development: definition of a development program for the interior of a building adapted to the client's needs, and execution of the work. Monitoring and Trends: identifying new solutions available in order to ...

4.2 Rising real estate prices

Real estate developers ultimately sell houses, apartments, offices and other infrastructures at market prices. They have little room for maneuver in terms of price increases due to strong intra-sector competition. Their typical pricing towards their clients is therefore that of the market price, and they make their profits by deducting the costs of the works, the State taxes, the fees (***), and the cost of the land.

According to the Royal Federation of Belgian Notaries a house in Belgium cost in **** an average of €***,***, so €**,*** more than in **** or a growth of +*.*%. Similarly, the average price of an apartment has gained nearly €*,*** to €***,***, or a growth of +*.*%.

Evolution of the average price of houses and apartments Belgium, ****-****, in thousands of euros Source: ****

Still, there are strong disparities across regions and provinces, both in average prices and in the evolution of these prices. Indeed, the median price of a house in **** was €***,*** in Brussels, €***,*** in Flanders, and €***,*** in Wallonia, and these prices have not stopped growing since **** in all regions. In addition, the median price of an apartment in **** was €***,*** in Brussels, €***,*** in Flanders, and €***,*** in Wallonia, as shown in the charts below.

Evolution of the median house price by region Belgium, ...

4.3 New trends

Real estate crowdfunding is a new mode of financing that is beginning to appear in order to supplement the equity contribution of real estate developers. Various platforms offer this financing, including Lymo, Wiseed, and Anaxago.

The *D virtual tour is becoming more and more popular. New technologies have made it possible to improve the customer experience, notably via virtual reality headsets. Many real estate developers have started to develop offers in this direction. According to Bien ici, it is time saved for future buyers who visit an average of * homes before finding the one that suits them.

The real estate development sector is also impacted by the development of intermediation platforms. They bring value to customers by centralizing their searches. Bouygues Immobilier, for example, opened the Valorissimo platform last year.

There are also more and more investments in senior residences. Real estate developers are expanding into this segment by working with specialists in the management of this type of establishment.

5.1 Regulatory framework

In Belgian law, there is no legal definition of real estate development because it covers multiple realities.

There are mainly * forms of real estate development in Belgium:

The promotion-sale: the developer is the project owner, he builds for his own account but with the objective to resell the building afterwards Promotion-construction: the developer takes care of all the activities necessary for the realization of the building on a land owned by the client. Promotion-organization: the promoter carries out all the activities required for the construction of the building, but through subcontractors.

The Breyne law of July *th **** regulates real estate development. It concerns real estate development contracts involving an apartment or a house intended for residential or professional use. The law protects the builder and the buyer against abusive clauses in the contracts.

There are also a number of rules. According to Legalex, the developer is not allowed to demand or accept any payment before the end of the property development contract. Moreover, it is only possible to revise the price if this revision was contractually provided for. Also, the developer must provide a financial guarantee to the builder and the buyer. Finally, the developer's rights to the land are transferred ...

6.1 Market segmentation

* (***)

• Thomas & Piron - Bâtiment
• Matexi
• Groep Huyzentruyt
• Vastgoedroep Degroote
• Houyoux Constructions
• Evillas NV
• SF Construct
• Cores Development
• Kijk & Bouw
• Kolmont
• Bouygues Immobilier
• Willemen Real Estate (Willemen Group)
• General Construction
• Gehlen Immo
• CBRE