According to De Nederlandsche Bank (DNB), since 2013 one in four homes in Amsterdam has been purchased entirely with cash. For homes bought with a mortgage, a significant amount of personal funds is often involved. Are these wealthy private buyers, or are investors seeing the Amsterdam housing market as a rising star?
Buying a home requires capital. While a mortgage can cover the full purchase price if your income is sufficient, you will still need to use your own savings to cover additional costs. Increasingly, personal wealth is becoming essential even for financing the home itself. First-time buyers entering the job market often do not earn enough to buy in Amsterdam. With assets behind you, more becomes possible.
Putting in fifty thousand euros or more of your own money
The DNB study shows that personal contributions between €50,000 and €70,000 are not unusual. In many cases, this comes in the form of gifts from parents helping their children buy a home. Considering how home prices in Amsterdam have developed, property in the city has proven to be a solid investment both in the short and long term.
How much can parents gift their children?
Parents may currently gift up to €5,320 per year tax-free. A much larger exemption applies if the money is used for a home. This includes buying a home, funding renovations, or paying off a mortgage. The exemption can go up to €100,000. This measure was introduced to stimulate the housing market. While this may no longer be necessary in Amsterdam, additional funds are now often essential to make financing possible. Over the years, an estimated €10 billion has been gifted to support home purchases.
Make sure you have access to cash before entering the housing market. Fully financing both the purchase and the related costs is no longer feasible.
Investors have also discovered Amsterdam
Since 2013, a quarter of all homes in Amsterdam have been bought without a mortgage. These are often private investors. Investors benefit in two ways. First, from the increase in the value of the property. In 2016, home prices in Amsterdam rose by more than 20 percent. That kind of return is hard to achieve on the stock exchange. Second, the property can be rented out for a high amount. The shortage of housing in the city drives rental prices up.
A sample investment shows the potential return
Suppose you buy a home in Amsterdam as an investment. Your total investment is €300,000. This includes all costs, such as valuation, notary fees, and the buying agent’s fee. The property itself costs €285,000. Demand for housing is strong, so you can expect solid rental income. Let’s say €1,500 per month.
Assuming you set aside annual costs and expect a price increase of 20 percent, your first-year return would be:
Rental income: €18,000
Value increase: €285,000 x 20 percent = €57,000
Total return: €75,000
This amounts to a 25 percent return. Factoring in fixed and variable costs, the actual return will be somewhat lower. A 20 percent increase is also above what can realistically be expected over the long term.
Buying your dream home or an investment property in Amsterdam can be a strong move. We make sure the process is smooth and successful. Welcome to Aankoopmakelaar Amsterdam.
