Overseas buyers moving to Luxembourg City tend to covet the charming, early 20th-century villas and townhouses in the upscale Belair and Limpertsberg neighborhoods. Too bad for them—these properties rarely go on the market. The owners prefer to keep their houses in the family.
An alternative could be Rue Louise Michel, the millionaire’s row of the city’s Kirchberg business district. But the homes here have a boxy, flat-roof design that is somewhat drab. Nonetheless, they command prices of around €5 million, or about $5.58 million, according to Christophe Muller, a broker at Sotheby’s International Realty.
In affluent commuter villages, like Bredel and Niederanven, the selection is little better. The thickly wooded setting is idyllic. But many of the homes are 1980s chalet houses often painted in loud shades of orange and blue. These go for between $1.1 million and $1.3 million, while a modern home in the village would cost $3.35 million to $4.46 million, estimates Max Bauer, founder of Livin estate agents.
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"Prices in Luxembourg have nothing to do with the quality of the houses for sale," Mr. Bauer says.
Luxembourg City’s problem is that its appeal to international companies has far outpaced construction of high-end homes that cater to the executives who relocate there for work.
Many of these newcomers work in Kirchberg, northeast of the city center, where international companies like Allen & Overy, UBS and KPMG have offices. The city’s European Parliament, Commission, and Court of Justice are also in Kirchberg. Other international firms represented in Luxembourg City include Microsoft and Amazon.
Today some 45% of the city’s total population (almost 550,000 people) is from overseas, according to global real-estate firm Knight Frank. And another 10,000 foreigners settle in the city each year.
High demand for property in Luxembourg City pushing its home prices higher. In the second quarter of 2016 prices increased 5.1% year-over-year, making it one of the strongest markets in Europe, according to Knight Frank.
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Developers are starting to catch on to a market for high-end homes. Work is under way on the conversion of the Cloister of Saint Francis, a former convent in Luxembourg City’s old town, into 19 apartments. Around half have sold, to buyers from Russia, France, Saudi Arabia, Germany and Luxembourg.
One buyer from France spent $17.85 million on a penthouse.
Prices for the remainder, which will be completed later this year, range from $2 million for a 1,152-square-foot apartment, to $9.15 million for a 4,306-square-foot home.
A few minutes’ walk away, French developer Codic is well under way with Royal Hamilius, a mixed-use development designed by British architects Foster + Partners. Apartments are expected to go on sale in the fall, with prices similar to the Cloister.
Thomas Lajoie, who heads the new homes department at Normills estate agents, acknowledges that Luxembourg City has been a "slow starter" in luxury property but is motivated to catch up.
"Developers are aiming high because buyers and investors are telling them they want luxury buildings," he said. "We are working to stay attractive to buyers with big wages."
A further piece of good news for Luxembourg newcomers is its moderate buying costs. Buyers (irrespective of nationality) pay a 7% registration fee to the government. Notary fees typically cost between $3,350 and $7,800. Owners pay annual tax of around $225 to $335, which covers services like street cleaning, and there is no capital-gains tax for selling a primary residence. Second homeowners pay capital-gains taxes at 20%, recently cut from 40% in an attempt to increase the amount of stock for sale. Income taxes are between 20% and 41%.
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Luxurious apartment buildings are, of course, not the only thing to make a city appealing. In June, Knight Frank’s Global Lifestyle Review named Luxembourg the best city in the world to raise a family, based on factors like the quality of health care and leisure facilities.
Tara Donnell, 42, moved to Luxembourg from the U.K. five years ago with her husband, Chris, who works for Amazon, and their three sons ages 4 to 11. She lives in Steinsel, a village 5 miles north of the city center.
"It is safe," said Ms. Donnell of Luxembourg City. "Little kids take the bus on their own and it is no problem. The schools are excellent. They have so much money that they have the best of everything here. The kids go hiking, swimming, learn to cook—and by the time they get out of school they will have four languages; Luxembourgish, German, French, and English. My eldest already speaks better French than me and I grew up in Canada."