Housing market showing signs of overheating in Amsterdam

[AMSTERDAM] It's getting hot in the Amsterdam property market.

The Netherlands, the nation of tulipmania almost 400 years ago, saw prices in its capital city surge almost 21 per cent in the first quarter. While the blame partly falls on a simple supply-and-demand imbalance, the signs are pointing to a potential squeeze. In London, by comparison, government data show prices rose about 14 per cent from a year earlier, according to Savills Plc.

In a market where almost half of properties are owned by non-profit corporations, mainly for social housing, there's just not enough coming on to the market to satisfy buyers. After falling about 14 per cent in five years, prices have rebounded recently and are now above pre-crisis levels.

"The Amsterdam housing market shows signs of overheating," said Frans Schilder, who studies housing policy in the economics department at the University of Amsterdam. "The prices are absurd but I don't expect them to fall in the near future." Any houses coming up for sale in the Amsterdam region are scooped up immediately. The supply shortage is a hangover from the financial crisis, which restrained new building and led to more families choosing to remain in the city, as it was harder to sell properties at a profit. In the first quarter of 2016, all houses that came on the market were sold, nearly half for more than the asking price. The asking price for an average house rose 5 per cent from a month ago in May while it was up 26 per cent from a year earlier, the Dutch bureau of statistics said Tuesday.

Another reason prices continue to skyrocket is that the Netherlands is relatively unique in still allowing buyers to borrow more than the value of the house - no down payment necessary. That means as prices rise, buyers have less of a barrier to entry than in other markets, like London, where the size of a cash down payment is increasingly pushing first-time buyers out of the market.

Add in historically low interest rates, and the convergence of those factors makes Amsterdam not just the hottest market in the Netherlands, but also one of the fastest-growing ones in Europe.

BLOOMBERG