The Dutch housing market: Another tulip mania?

De Boer Financial Consultants are specialised in expat mortgages. Article author José de Boer is the owner and director and has many years of experience dealing with a wide variety of expat-related legal and financial matters.

The Golden Age was a period in the history of the Netherlands occurring mostly in the 17th century. During this period, Dutch trade, science and art were renowned worldwide. It was during this time that a beautiful new flower was introduced; the tulip. The first tulips came from the Ottoman Empire (Turkey) and found their way through Vienna to the Low Countries (Belgium and the Netherlands).

A Dutch botanist, Carolus Clusius, was the first to plant his collection of tulip bulbs and found that they thrived in the harsher conditions of the Low Countries. The tulip was different from any other flower that was known in Europe at that time and soon started to gain popularity, becoming a status symbol.

The bulb prices reached extraordinarily high levels and some single tulip bulbs would sell for more than ten times the annual income of a skilled worker during the 1630s. This tulip mania is considered to be the first recorded “speculative bubble”.

In 1637, the tulip market collapsed dramatically. So how does the tulip mania relate to the current Dutch housing market? Are we in a bubble and will the market collapse any time soon?

Intrinsic value

The term “intrinsic value” refers to the real or actual value of a security or object. So, in the case of real estate, one of the most important questions to ask when you are buying is: what is a property worth? Unlike the Tulip bubble, everybody needs a home to live in, and the Netherlands simply has a housing shortage.

So, the intrinsic value of a tulip in the 17th century cannot be compared to the intrinsic value of real estate in the Netherlands. But what is a property worth?

Well, a property is only worth what a buyer is willing to pay for it. And there you have it…. “intrinsic value”. What does the property mean to the buyer?

Currently, the housing market in the major cities in the Netherlands is indeed hot and prices continue to rise due to lack of availability. But is it overheated?

Waiting for the bubble to burst

The majority of houses in Amsterdam are reserved by the municipality for social housing and Amsterdam is a very popular city to live in with many jobs and many expats. This adds to the serious housing shortage and this drives prices up even further. Bubble? Maybe, maybe not.

However, if you try to sit it out, waiting for the bubble to burst, you may come to regret it, especially if prices continue to rise. The Hague, Utrecht and now Rotterdam are quickly following in Amsterdam’s footsteps and are now becoming increasingly more expensive, as well as most neighbouring towns.

Alternatives to buying?

But what are the alternatives to buying? Rental properties are also hard to find. Should you be lucky enough to acquire a property in ownership, you will not have to face annual rent increases any more and you will be able to build up equity.

When you rent a property, you are paying someone else’s mortgage. This may be inevitable if you are here for just a number of years, but for the longer term, you may prefer to own your own home.

Is overbidding the answer?

If you have decided to take the plunge and buy, partly because you also believe real estate to be the investment of your lifetime, and / or because renting property is even more expensive now and even more so in the future, you will most likely ask yourself: What amount should I bid? Should I perhaps even overbid on the property to make sure I get it?

There is no easy answer. You will need to consult with a real estate agent in the city where you wish to buy, since only a local real estate agent will have a good feel for the value in that particular street or area of the city. But it is true that currently many people are overbidding out of fear of losing the property they have set their eyes on.

How can you make sure your bid will stand out?

Is there something else, apart from overbidding, that will make your bid stand out? Well, in the Netherlands, it has been the standard to make a bid subject to being able to get a mortgage. Bids thus usually contain the so-called “financial contingency clause” (ontbindende voorwaarden financiering).

So, when you make your bid, you usually add the sentence that this bid is subject to you being able to get a mortgage. Normally, a period of four weeks would be needed to achieve this. If your mortgage application gets rejected by the bank, the financial contingency clause will protect you and help you get out of the purchase contract without financial consequences.

But what if you make your bid without this financial clause? This will make your bid more attractive to the seller, of course. If the seller receives several bids, but just one or two of them do not have this financial clause, the seller will consider those bids to be more attractive. He or she will be sure of the sale immediately, instead of having to wait four or more weeks for the buyer to organise his or her finances.

No need to be a millionaire

Do you have to be a millionaire, or at least a cash buyer, to be able to make a bid without the financial contingency clause? No, of course not. All you need is to do your homework before you make your bid!

If you provide your financial advisor with enough details about your financial and personal situation, he or she will be able to prepare your application to such a level that a mortgage can be arranged very quickly, enabling you to make your bid the best bid on the table, without having to overbid everyone else.

FVB de Boer is a leading international broker in expatriate financial services, products, and financial advice. Their financial advisors help expats in the Netherlands and abroad with mortgages, pensions, managing investments, regular savings, taxes, insurances, and much more.