Here is our introduction to the housing market in the Netherlands. Should you rent or buy?

Last year, estate agents were still checking to see what the real impacts were going to be of the massive changes to the housing market over the last five to seven years. Now, depending on who you speak to, it is definitely settled, stable or stuck. So should an expatriate buy or rent a house? Here are some pointers.

Most estate agents agree that the current market is very different to the market of fives years ago. The average cost of a house five years ago was EURO 137,000. Now, a single-family dwelling averages between EUR 240,000 and EUR 250,000.

Five years ago, to encourage home-owning and improvement, there were tax deductions on renovations of older properties. These tax deductions have gone, and those that do still exist (see below) are under threat as the pressure mounts for Holland to come in line with the rest of the EU.

In order to satisfy the demand for single-family housing, many of the major cities are developing entire new urban neighbourhoods (like Den Haag and Amsterdam). Although recent statistics show that construction is lagging far behind what the government had projected.

One of the major selling points of these new areas is that you can have a say in the design of the house. One of the major drawbacks for expat buyers is that they are often leasehold and the ground remains the property of the local municipality.

The drawback for estate agents in almost all urban areas is that the highest demand – across the board – is for properties in the older, "nicer" neighbourhoods, built around 1900 – 1935. This is where the market remains "stuck"; as older people remain in their homes for longer, there are fewer older properties coming onto the market. Also, prices have now climbed high enough to make it difficult for first-time buyers to enter into the market.

Sales are still, however steadily increasing and the current growth rate is around 1 percent per quarter. This is partly due to the government push to build more housing, including new rentals, and renovating and releasing up to 20 percent of urban housing from the social rental sector to sales.

This, in turn has had an impact on both demand on social housing, and increases in rents in the 'free sector' where most expats end-up when they first arrive. Another side-effect of the high-price, urban market is the increase in those that default on their mortgage, and the subsequent repossessions, which are also increasing steadily, particularly for first-time buyers.

Rent or buy?

There used to be a general rule-of-thumb that said if you were to reside in the Netherlands for more than five years and if you would be paying more than EURO 1,750 per month in rent, then a house was a worthwhile investment.

While this is still generally true, there are many other variables that have an impact on this rule. For example, if buying an older property they almost always require basic renovations to bring wiring, kitchens and bathrooms up to current EU standards.

It is also true that as the market is now stable and steadily increasing, it is more of a long-term investment; there are considerable initial costs (10 – 12 percent), so your investment is 110 percent of the purchase price. It takes a minimum of three to five years to recover these costs through tax deductions and rising value of the property. Also, these accrued benefits are not high enough to offset paying off the mortgage for resale until a minimum of three years.

Benefits of renting

For assignments of less than three years, in the current market, it is almost always better to rent. Rental costs are fixed, contracts can be ended if you need to go back home, and the headaches of repairs and maintenance are the landlord's responsibility. Also, there is no loss through having to resell before your costs can be covered, or the hassle of waiting for the property to sell should the market slow again.

Benefits of buying

Rent is not tax deductible and, if your employer either pays the rent or contributes to a housing allowance, it is taxed as a benefit. Buying a house can offer very good tax deductions and benefits if you are a long-term resident under the current taxation system.

Current tax implications for homeowners

• Interest payments on mortgages are tax deductible if the property is used as the primary residence and you are registered as a resident taxpayer.
• Expenses relating to the closure of the mortgage are tax deductible. In terms of the notary, costs to conclude the contract are also tax deductible, but the costs of transfer are not.
• Increases in the value of the house are tax-free if used as primary residence as there is no capital gains tax, but will have an impact on the amount of mortgage interest deductible if you use the profits to purchase your next home.
• Tax will be levied on the "deemed rental value" of the house (compared to deductions allowed for interest, this amount is normally quite low). This value is determined by the local municipality and will be used by the tax authorities.
• If you leave the country but continue to own the house, the tax deductions disappear as they are based on residency.
• The 30 percent tax ruling [see Taxation section] may have a negative impact on your ability to get a mortgage as you are registered as a non-resident taxpayer, or the amount you might be eligible for and their conditions. However many expats on the 30 percent ruling have bought property, so it is best to seek advice.

These are meant as general guidelines. Individual circumstances will vary.

Updated April 2007

[Copyright Expatica 2007]

Subject: Dutch housing market