The Beginning of the End for Dutch Real Estate: The Rising Sun of Aruba Property Land –
By Simon F. Waslander 14th April 2023
Fueled by a decade of negative interest rates and balance sheet expansion by the European Central Bank (ECB), especially following the Corona pandemic, has inflated one of the most epic bubbles in recent financial history. Namely the real estate market of residential housing in the Netherlands. Again the story with every single bubble in memory comes to mind, “This time is different,” and countless excuses have been made by some of the most intelligent bank analysts and fund managers cheering on the liquidity-induced euphoria of European real estate.
The party was going just swell and dandy until inflation started to rear its ugly head.
With Eurozone inflation rates surging to multi-decade highs.
Forcing the ECB to tighten monetary policy in a highly forceful and abrupt manner. As a result, the average mortgage rate in the Netherlands has surged, more than doubling in less than 24 months. Creating a terrible shock for the already overleveraged speculative frenzy in Dutch housing.
The consequence has been just as awe-inspiring as the rise in mortgage rates, the Dutch housing sector has been witnessing its most epic free fall since 2014, with prices on national average already down more than 8% from their record peak.
What is even more startling is that in real inflation-adjusted terms, with Dutch inflation at more 4.4%, the “real” losses are in the double digits.
The Collapse is just Beginning:
As was noted on various occasions, the Dutch real estate market faces both short-term and long-term stressing factors. Not the least high mortgage rates but also recent Dutch government policies enacted to stifle speculation. To make a long and complicated story short, the Dutch government has introduced harsh taxation for “speculators” who have bought homes with mortgages and rented them out on the private market. With the new tax plans, an average house, while only producing a net after-tax income of only 565 euros!
As a result of these new government policies, a wave of supply is hitting the market. With certain owners are willing to pay renters upwards of 10.000,- euro’s to leave the house in order to put the building on the market. This medium-term factor which is about the hit an already vulnerable market, will undoubtedly pressure prices further.
But the most worrisome factor is the specter of a resumption of a European debt crisis. Already we have seen the collapse of a large Europe-based bank, namely Credit Suisse. Although not on the direct radar of most investors, European banks are quite vulnerable. If interest rates were to rise further, we will, in all probability, see more failures of large financial institutions on the continent. These factors will sour European real estate markets even further.
A Sea of Liquidity Seeking a “New Home”
With Dutch real estate becoming ever more unattractive, this sea of liquidity will seek novel income-generation opportunities. Indeed not all real estate markets are under as severe pressure as Dutch residential real estate. Case-in-Point is the Miami, Florida, luxury property market which is showing absolutely no signs of price fatigue even in the slightest sense. Land prices for prime beachfront lots now command more than $14.500,- US Dollars per square meter.
Located in the Dutch Caribbean and being part of the Kingdom of the Netherlands, the island of Aruba is already seeing large demand from the indirect correlation with the luxury Miami real estate market.
But being part of the Dutch Kingdom and its eye-popping return on investment due to its luxury real estate appeal, Aruba will, in my humble view, attract ever more European-based capital fleeing the continent’s now unattractive markets. Aruba is a relatively tiny economy and real estate market. Increased European flows will have an outsized effect on Aruba’s market.
Especially the “prime market” of “Noord” will see waves of capital flowing in its direction.
With the tides of Dutch real estate turning, Aruba’s luxury property market is set for outsized gain at the expense of its Netherlands-based counterparts.