The residential property price index in Vienna, the capital, rose by 13.09% (10.02% inflation-adjusted) during 2012, its ninth consecutive year of continuous house price rises, according to Oesterreichische Nationalbank. However on a quarterly basis, house prices in Vienna actually dropped 0.65% (-1.61% inflation-adjusted) in Q4 2012, its first quarterly drop since Q2 2011.
Property prices in the rest of Austria have also been rising rapidly. In Austria excluding Vienna, house prices rose by 8.46% (5.52% inflation-adjusted) in 2012 from a year earlier.
In Vienna, property prices range from €2,500 per square meter (sq. m.) to €3,298 per sq. m., according to the Chamber of Commerce of Austria. On the other hand in Kitzbühel, a famous ski resort in Tyrol, apartment prices start at around €360,000 while luxurious three- to five-bedroom chalets are usually sold at €2 million to €4 million.
House prices in Vienna have been rising consistently since Q3 2004. During the housing boom (2003-2012), house prices in the capital soared by 89.5% (55.4% inflation-adjusted). On the other hand, property price changes in the rest of Austria have been erratic ever since the index was assembled in 2000. House prices rose by just 31.8% (8.1% inflation-adjusted) from 2003 to 2012.
The divergence between the capital and the rest of Austria may be partly because it is difficult to build in the centre of Vienna.
In the third quarter of 2012, there were 9,689 dwellings authorized in new residential buildings, according to Statistics Austria. Dwellings authorized rose by 9.4% to 43,150 in 2011 from a year earlier. The gross floor area of authorized new buildings was about 2.9 million sq. m. in Q3 2012.
The housing market is expected to remain strong in 2013, albeit on a slower trajectory, according to the Austrian Property Association. Demand is expected to remain high and property prices are projected to continue rising in 2013, according to most local property experts.
Analysis of Austria Residential Property Market »
Innere Stadt is Vienna’s least populated district, with roughly 17,000 inhabitants. But with a workforce of around 100,000, it is Vienna’s largest employment locale.
Apartments in Innere Stadt change hands at around EUR 8,000 to EUR 13,000 per sq. m., whereas in the other areas, apartments cost around only EUR 4,000 to EUR 5,000 per sq. m.
Innere Stadt apartments fetch for higher rents, ranging from EUR 19 to EUR 21 per sq. m. per month. In the other upscale districts of Vienna, rents range from EUR 14 to EUR 15 per sq. m. per month. Vienna’s Innere Stadt therefore has the poorest rental yield, at around only 2.34%. In Vienna’s other luxurious areas, rental yields range from 3.29% to 4.26%, with smaller apartments earning the highest rental returns, and bigger apartments earning the lowest rental returns.
Salzburg apartments cost around EUR 4,000 to EUR 6,000 per sq. m. Rents on Salzburg apartments are close to Viennese levels, ranging from EUR 13 to EUR 14 per sq. m. per month.
Apartments are most affordable in Graz, where apartments cost, on average, EUR 2,000 to EUR 3,000 per sq. m. In Graz, rents range from EUR 11 to EUR 12 per sq. m. per month.
Gross rental yields are the highest in Graz, ranging from 4.85% to 6.34%. Smaller apartments return higher rental yields than bigger apartments. For example, a 40 sq. m. apartment returns a 6.34% rental yield, while a 120 sq. m. apartment returns only a 4.85% rental yield.
The same trend is observed in Salzburg, where a 60 sq. m. apartment returns 4.57% rental yield, while a 225 sq. m. apartment returns only 2.48% rental yield.
Nonresidents suffer special penalties, the tax base of each nonresident individual being notionally increased by €8,000 – see Baker & Tilly’s worked example, footnote 7.
Capital Gains: There is no liability to capital gains tax if the property is sold after 10 years. Otherwise, capital gains are taxed at progressive income tax rates.
Inheritance: Inheritance tax is abolished effective 01 August 2008 and will be replaced by an ‘information duty’ to authority or ‘gift reporting tax’.
Residents: For Austrian residents, worldwide income is subject to Austrian taxation.
Rent Appeals: Tenants can appeal to a rent tribunal even after they have left the apartment, and reclaim rent ‘overpaid’. However with new rentals, the difference between what the rent tribunal would assess and free market prices is very small.
Tenancy Laws: The two sources of tenancy laws are the “ABGB” (General Civil Code) and the “MRG” (MietrechtsG, TenStatute), of 1982, as frequently amended. It is sometimes difficult to know whether both laws simultaneously apply (flats are covered by the much more restrictive MRG).
“The frequent amendments and its complex regulations…make the MRG and the regulations connected to it rather a “dark” discipline which is normally only overseen by lawyers specialized in the field of tenancy law,” notes the EIU Tenancy Law Project Austria survey.
The Austrian economy is projected to expand by 1% in 2013 and 1.8% in 2014, according to the Austrian Institute of Economic Research (WIFO). Exports are expected to increase by 3.8% this year, while private consumption should increase by 0.6%.
“The domestic economy is still poised for a long and broad-based recovery”, said WIFO. “There are still risks, however in the external environment.”
In 2012, Austria’s budget deficit stood at about 2.5% of GDP (€7.7 billion), beating the government forecast of 3.1% of GDP, and keeping it below the EU’s target. This was mainly a result of the government efforts to cut spending and increased taxes. It introduced a banking tax, extra taxes on tobacco, petrol and flight tickets in 2011.
In January 2013, Austria’s unemployment rate was at 4.9% (Eurostat definition), the lowest in the EU.
However, the sovereign debt climbed to a new high of €227.4 billion or about 73.4% of GDP in 2012, well over the 60% target. In February 2013, the annual inflation rate slowed to 2.5%, according to Statistics Austria. The inflation rate is expected to be 2.2% in 2013 and 2% in 2014, according to WIFO.
The prime driver of the Austrian economy is exports to its main trading partner, Germany. More than 75% of Austria’s exports go to Europe, 30% to Germany. Austria experienced relatively strong economic growth from 2004 to 2007 with an average annual GDP growth of 3.1%. After contracting by 3.8% in 2009, the economy emerged from recession with growth rates of 2.31% in 2010 and 2.7% in 2011. However due to the on-going debt crisis, the Austrian economy slowed sharply in 2012, with a real GDP growth of just 0.8%.
The country was annexed by Germany during the Second World War amongst popular acclaim. After World War 11, the Allies occupied Austria until 1955. The country then became a fully independent republic, under the condition that it would remain neutral. Austria joined the European Union (EU) in 1955 and the Euro Monetary System in 1999, and is a founder-member of the OECD. It signed the Schengen Agreement in 1995 and adopted the Euro in 1999.
Austria’s capital, Vienna, is home to key international organizations. These include the International Atomic Energy Agency (IAEA), the Organization for Security and Cooperation in Europe (OSCE), and the Organization of Petroleum Exporting Countries (OPEC).