Netherlands Residential

MarketView
CBRE Global Research and Consulting Spring 2014
Figure 1: Key economic figures
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% GDP Inflation Unemployment Consumption
Hot Topics
Owner-occupier market
recovering
Dispositions of housing
corporations gain pace
First foreign entrants in
investment market
Key Facts
In line with the economic upturn in the
Netherlands, the residential market
appears to have bottomed out, although
recovery is still focused on the lower
segments and the big cities. Although
preliminary calculations for 2013 show
a contraction in GDP of 0.8%, modest
growth is projected for 2014.
Meanwhile, the unemployment rate is
expected to flatten out, and, albeit
gradually, consumer confidence is
forecasted to increase.
Demographic developments continue to
put pressure on the residential market,
reinforced by recent regulatory reforms.
Until 2040, population and household
growth are expected to raise the
demand for relatively small-scaled
dwellings in particular.The population is
expected to increase considerably in the
UPTURN IN MARKET ACTIVITY
Source: Oxford Economics
major cities, while rural/peripheral
locations may face stagnation. However,
population growth also differs among
the G4 cities. Utrecht for instance is
showing the largest population growth,
followed by Amsterdam and The Hague,
while the population in Rotterdam is
expected to remain fairly stable up to
2040. On aggregate, the demand for
single-person housing will increase. This
is partly due to a growing proportion of
elderly households.
The housing shortage is also subject to
lagging construction volumes. In 2013,
completions reached a low of 35,000
dwellings. In addition, the amount of
permits granted dropped with 30%
compared to 2012. This is particularly
affecting cities where housing is already
scarce, such as Amsterdam and Utrecht.
INVESTMENT VOLUME
Q1: 73% Y-ON-Y
HOUSE PRICES
Q1: -2% Y-ON-Y
PRIME YIELD
Q1: -10 BPS Q-ON-Q
INFLATION
Q1: -1.1% Y-ON-Y
SOLD UNITS
Q1: 21% Y-ON-Y
Quick Stats
Movement since Q3 13 Q1 13
Rental prices
Initial yield
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Source: Statistics Netherlands
Owner-occupier market
After six years of decline, the owner-occupier market
experienced an upturn from the second half of 2013
onwards, both in terms of sales volume and house prices.
While the housing market reached a trough in January 2013
with 6,260 dwellings sold, the sales volume gradually
increased towards December when 15,463 units were sold.
Although activity on the housing market generally reaches its
peak in December, the recovery of sales volumes is expected
to continue in 2014 as Q1 has shown a y-on-y increase in
units sold of 21%.
In line with these developments, the downward spiral for
house prices seems to have come to an end. Although
average house prices still show a y-on-y decline, they
gradually climbed to 214,147 in March 2014 after they
reached a low in June 2013. Furthermore, the amount of
dwellings for sale has declined from Q3 2013 onwards to
207,564 in March 2014, which represents a y-on-y decrease
of 9.3%. Together with the increase in units sold, these
developments prove the owner-occupier market is clearly
showing signs of recovery.
Rental segmentation
Despite increasing activity in the owner-occupier segment, the
quantitative pressure on the housing market has resulted in a
segmentation of the rental segment. To encourage tenants in
the regulated sector to move towards higher priced dwellings,
a new housing covenant has been implemented allowing an
income-dependent mark-up on rents (between 1.5% and
4.0% excl. inflation). On the short run however, these
measures have put increasing pressure on medium-priced
units, particularly in cities with tight market conditions such
as Amsterdam and Utrecht.
To overcome this issue, Amsterdam and Utrecht have
proposed to develop a customised housing policy, with a
further emphasis on variable rents and short-term or
temporary lease contracts. An additional objective of the
policy is to limit housing corporations to their core business
by phasing out commercial activities. This ambition is in line
with recent propositions for the Housing Act of 2015, in
which supervision on housing corporations is expected to
be tightened.
Figure 3: Sold units
Source: Land Registry
Figure 2: Population growth 2014-2040 THE OWNER-
OCCUPIER MARKET
IS CLEARLY
SHOWING SIGNS
OF RECOVERY

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Nominal Inflation Real
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Figure 4: Price index owner-occupied housing
Source: Land Registry
Figure 5: Rental development
Source: Statistics Netherlands
Rental growth
In addition to these restrictions, tax burdens implied by new
regulations are also likely to affect housing corporations. The
Landlord Levy Act compels owners of regulated housing to
pay a levy based on the property tax value (WOZ-waarde).
The levy is applicable to any entity holding more than ten
units in the regulated rental sector. To compensate for the
expenses, the government allows landlords to charge extra
rent based on the income of the tenants.
As the majority of the rental segment consists of regulated
units, the income-dependent rent increases have a large
impact on average rental growth.
According to Statistics Netherlands, rent levels have
increased by 4.7% on average in 2013, which represents
the highest annual increase since 1994. With respect to
the annual five-year average of 2.7% this increase is
considerable. It also clearly outruns inflation, which,
according to preliminary calculations for 2013, amounted
to 2.5%.
Sell-side activity
As housing corporations own the vast majority of regulated
rental housing, they have been the most affected by the
Landlord Levy. Supplemented by tight budgets and financial
distress resulting from the economic crisis, several housing
corporations have recognised the need to enter the sell-side
of the market. Vestia for instance, has put 6,595 residential
units on the market, the first portion of a bulk of 30,000
dwellings to be sold by 2022.
The disposition of residential portfolios by housing
corporations is also supported by more lenient policies
towards selling regulated rental properties. As a result, the
disposal of portfolios by housing corporations is an
increasing source of investment volume. However, most
portfolios sold consist of liberalised dwellings, since investor
demand for regulated rental housing is low and price
discounts are required. This is because certain policies
regarding regulated housing still apply. These include an
obligatory 30 years of profit sharing and the restriction to
resell properties after at least 7 years of ownership.
THE DISPOSAL OF
PORTFOLIOS BY
HOUSING
CORPORATIONS IS
AN INCREASING
SOURCE OF
INVESTMENT VOLUME
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mio
Figure 6: Investment volume
(excl. corporation purchases)
Source: CBRE
INTEREST OF
FOREIGN INVESTORS
IS INCREASING
Investment market
In Q1 2014, the investment volume in residential real estate
amounted to 247 million, representing a y-on-y increase
of 73% compared to the 143 million in Q1 2013. Most
investment deals in 2014 concerned dwellings in Amsterdam
and nationwide portfolios. The rise in investor appetite
already became notable in Q4 2013, when investments
almost doubled with respect to Q4 2012. Increasing investor
activity is expected to carry on in the course of 2014.
The investment market for residential properties is currently
largely dominated by private investors. With favourable price
levels of residential units in the Netherlands compared to
other key European countries and positive growth projections
for the commercial rental segment, interest of foreign
investors is increasing. As of April 2014, this foreign interest
has resulted in the first actual acquisition with the purchase
of 265 dwellings from Amvest by German investment fund
BNP Paribas REIM. Following the increase in investment
activity, net initial yields have sharpened slightly in Q1 2014,
both for single- and multi-family housing.
Investments in unregulated dwellings are largely fueled by
new construction. In addition to unregulated housing,
investor interest is targeting alternative segments of the
residential market such as student housing or specific starter
units, with a high value per sq m. Student housing often
concerns the redevelopment of obsolete office buildings.

Source: CBRE | Stijnstijl Fotografie

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26.2%
43.8%
19.6%
10.4%
Developer Institutional, Investment fund Corporation Private/ Other
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40.2%
0.4%
8.0%
Private Institutional, Investment fund Corporation Other
Figure 7: Purchasers (excl. corporation purchases)
Q3 2013- Q1 2014
Figure 8: Vendors (excl. corporation purchases)
Q3 2013 - Q1 2014
Source: CBRE | Stijnstijl Fotografie
Source: CBRE
Source: CBRE
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Table 1: Prime net initial yield
Q2 2013 (%) Q3 2013 (%) Q4 2013 (%) Q1 2014 (%)
Single-family 4.50 4.50 4.50 4.40
Multi-family 4.70 4.80 4.80 4.70
Table 2: Key investment transaction Q3 2013 - Q1 2014
Location Type Purchaser Vendor Status Price (mio ) Number of units
Netherlands
Nationwide
Mixed Private investor BPFD Existing 138 987
Netherlands
Nationwide
Multi Quadrigo ASR REIM Existing 95 965
Netherlands
Nationwide
Multi BNP Paribas REIM Amvest Existing 40 265
Rotterdam Student SSH Vestia Existing 38.9 1,422
The Hague Student Duwo Vestia Existing 37.6 850
Amsterdam Student
Bouwfonds European
Residential Fund
Foolen & Reijs Real Estate New 25.7 354
Barendrecht Single Syntrus Achmea Amvest New 16.3 101
Amsterdam Multi MN Services BAM New 11.7 46
Alphen aan den Rijn Single Syntrus Achmea Amvest New 11 54
Source: CBRE

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The owner-occupier market is showing signs of recovery, with
stabilising house prices and rapidly increasing sales volumes.
Amsterdam and Utrecht have already witnessed price
increases, while other cities are expected to follow. The rising
demand for housing is also reflected in a decline in units for
sale. On the long term, this increase in demand is likely to
continue - particularly in the G4 cities - as projections of
population growth are supplemented by an increase in the
number of households.
The developments in the owner-occupier market will have
implications for the rental segment as well. Given the current
market conditions, home owners are less likely to be forced
into subletting their property while waiting for a potential
buyer. Short-term lease contracts have provided a temporary
solution for both home owners and a tight supply of rental
housing. So while the owner occupier-market seems to
recover, pressure on the rental segment is expected to remain
high.
Prospects of a prolonged shortage of rental housing do
provide opportunities for investors as the commercial rental
segment in the Netherlands is still rather small. Compared to
other key European countries with a more mature
unregulated segment, yields on residential property in the
Netherlands are relatively high.
Supplemented by stable cash flows from rental income and
positive growth prospects for commercial housing, the Dutch
residential market is increasingly attractive for foreign
investors.
In addition, new policies have been adopted in the wake of
the financial crisis providing more lenient regulations towards
rent increases and the disposition of dwellings by social
housing corporations. In line with the announcement of
Vestia to offer a large bulk of residential properties on the
market, more housing corporations in financial distress are
likely to follow. However, as certain restrictive regulations still
apply, investor interest will particularly be focused on
unregulated housing. In order to sell regulated housing
properties price discounts are expected to remain customary.
Given the current differentiation in the residential market,
institutional funds continue to pursue core properties in the
Randstad area and new developments. Private investors are
largely focused on other regions with higher risk, but more
favourable property values. Overall, particularly value-add
portfolios with a higher vacancy, which are easily transformed
into higher rental value segments (according to the so-called
points-system for rental housing), will provide interesting
investment opportunities.
OUTLOOK
Source: CBRE | Stijnstijl Fotografie
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