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Apr 14, 2016

Austrian housing market vibrant, despite weak economy

by Lalaine Delmendo

 

Austria house pricesAustria’s house prices continue to rise, despite meagre economic growth. The residential property price index in Austria rose by 4% (3.1% in real terms) during the year to end Q3 2015, based on Oesterreichische Nationalbank (OeNB)’s figures. During the latest quarter, property prices rose by 1.3% (1.5% in real terms) in Q3 2015.

Almost all parts of the country continue to show healthy growth:

  • In Vienna, the capital, residential property price index rose by 3.4% (2.4% in real terms) during the year to Q3 2015. During the latest quarter, house prices in Vienna increased 0.1% (0.4% in real terms) in Q3 2015.
  • In the rest of Austria, residential property prices rose by 4.3% (3.4% in real terms) in Q3 2015 from a year earlier, and increased 1.8% (2.1% in real terms) from the previous quarter.

A more bullish picture is given by Statistics Austria, based on their own statistics. Their figures show the overall house price index soaring by 9.3% (8.3% in real terms ) y-o-y in Q3 2015, the highest annual increase since the figures were first published in 2010.

By property type:

  • For new dwellings, the average price rose by 5.47% (4.52% in real terms) y-o-y in Q3 2015 and increased 0.8% (1.07% in real terms) from the previous quarter, according to Statistics Austria.
  • For existing dwellings, the average price surged 10.15% (9.16% in real terms) y-o-y in Q3 2015 and rose by 4.77% (5.05% in real terms from the previous quarter.
  • For existing single-family houses, the average price soared by 13.41% (12.39% in real terms) in Q3 2015 from a year earlier, but increased by just 0.9% (1.17% in real terms) from the previous quarter.
  • For existing flats, the average price rose by 8.79% (7.81% in real terms) in Q3 2015 from a year earlier, and by 6.62% (6.9% in real terms) from the previous quarter.

Transactions are up; foreign buyers a-plenty

In 2015, the number of real estate transactions in Austria increased 16.6% y-o-y to 112,124 units, according to real estate firm REMAX. Moreover, the Austrian real estate market grew by 20.4% in terms of value in 2015 from a year earlier, to reach EUR23.5 billion.

In the high-end residential market, Austrians represent about 60% of property buyers in the country while the remaining 40% are foreigners, mainly from Eastern European countries like Russia and Ukraine, said Peter Marschall of Marschall Real Estate in Vienna. Wealthy Eastern Europeans are attracted to Austria due to cultural similarities. In addition, Eastern Europeans see Vienna as a very safe environment and a safe haven for their investments.

Residential property prices are expected to continue to rise this year, albeit at a modest rate, according to local real estate experts. Moreover, demand is also projected to rise further, as more foreign investors become interested in the country, partly because of the high quality of life that Austria offers. “More Italian, Swiss and American buyers are now part of this market,” says Alex Koch de Gooreynd, international residential director of Knight Frank.

Vienna is ranked as the world’s best city to live in, in terms of quality of life, according to the 18th Mercer Quality of Life study. The study examined social and economic conditions, health, education, housing and the environment.

“Vienna has ranked top in the last seven published rankings,” said Mercer. “It scores highly in a number of categories; it provides a safe and stable environment to live in, a high level of public utilities and transport facilities, and good recreational facilities,” Mercer added.

Local house price variations

Austria house price index

The First District, also called “Innere Stadt”, which means “Inner City”, is a UNESCO heritage site blessed with baroque architecture as well as the Imperial Palace. The First District is the center of luxury and secondary home market in Vienna. Luxury apartments currently range from about EUR 10,000 to EUR 17,00 per sq. m. for exclusive penthouses, according to Global Property Guide research of August 2015. Other more desirable residential properties in Innere Stadt are priced EUR 25,000 per sq. m., according to Stefan Brezovich of Viennese property group ÖRAG.

A 200-sq. m. duplex penthouse in the First District is selling for EUR 3 million.

In Graz, apartments cost, on average, EUR 2,600 to EUR 3,100 per sq. m. On the other hand, Salzburg apartments cost around EUR 3,300 to EUR 4,600 per sq. m.

House prices in Vienna have risen far more than in the rest of Austria

Austria residential property index

House prices in Vienna have been rising consistently since Q3 2004. During the housing boom (2003-2013), house prices in the capital soared by 99.6% (61.7% in real terms). 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 37.1% (11.1% in real terms) from 2003 to 2013.

in 2014, Vienna house prices rose by just 1% (-0.4% in real terms) while prices in the rest of Austria increased 3.1% (1.6% in real terms). Despite this, there remains a huge gap in their property price levels.

The divergence between the capital and the rest of Austria during the period is puzzling.  It may be partly because it is difficult to build in the centre of Vienna, so new supply is very limited.  It may also be because in an era of low interest rates, people are putting money into rental properties, and Vienna offers relatively easy renting (though returns are quite moderate).  Another possible factor is that the majority (about 70%) of residential real estate in Vienna is owned by institutional investors, i.e., banks and companies.

Housing supply rising again

Austria dwellings stock

The number of new dwellings built in Austria was around 66,000 units yearly in the 1990s, but as a result of a boom-and-bust cycle, the number fell to about 40,000 units a year during 2001-2004.  Dwellings authorized rose to 61,521 units in 2014, from 59,149 units in 2013, 52,637 units in 2012, and 50,396 units in 2011, according to Statistics Austria, but dwelling completions in 2014 were still only 50,700 units.

In the third quarter of 2015, the total number of new building permits rose by 3.8% to 6,391 units from the same period last year, according to Statistics Austria. The number of dwelling units in new residential buildings increased 14.2% y-o-y to 18,328 units over the same period.

By the start of 2015, the total housing stock in Austria had reached 4,506,027 dwellings, of which about 51% were units in multi-storey buildings while less than 46% were located in one- and two-family houses.

Vienna's local government plans a 30% boost in housing construction starting 2017, implying that about 13,000 new homes will be built in Vienna every year, up from the current 10,000.

Better rental yields outside Vienna

Austria building permits

Austria’s rental market is segmented via tenure, regulation and market forces into a hierarchy of low rents for municipal, other social tenants and long-term incumbents in the private sector, but higher free market rents for recent entrants into the private rental sector (though even the "free" sector is substantially controlled, with maximum rents clearly specified by the authorities). Global Property Guide’s figures cover the "free" market sector only.

Rental yields in Vienna’s Innere Stadt (Old Town) are poor as compared to the other upscale areas in Vienna, with yields ranging from only 1.38% for 250-sq. m. apartments to 2.83% for 55 sq. m. apartments, according to Global Property Guide research of August 2015. In Vienna’s other luxurious areas, rental yields range from 2.83% to 4.22%, with smaller apartments earning the highest rental returns, and bigger apartments earning the lowest rental returns.

Better yields can be found outside Vienna. Gross rental yields are higher in Graz, ranging from 3.74% to 5.51%. The smallest apartments return the highest rental yields. In Salzburg, gross rental yields ranged from 3.53% to 5.31% in August 2015.

An oversupply of rental units during the 1990s led to a fall in rents. The rent decline stopped in 2000 and rents even rose briefly until 2001, but fell once more in 2002. Moreover, the continued increase in home prices in Austria, especially in Vienna, has resulted to a fall in rental yields.

Residential rents are rising

Austria average rent dwellings

Residential rents in Austria continue to rise. In Q4 2015, the average residential rent in Austria rose by 0.7% from the previous quarter, to EUR477.80 per month, according to OeNB. In other words, the average residential rent per square meter (sq. m.) for a 66-sq. m. property was EUR 7.24 per month in Q4 2015.

Innere Stadt apartments fetch one of the highest rents in Austria, ranging from EUR 18 to EUR 20 per sq. m. per month in August 2015, according to according to Global Property Guide research. These rents have not increased in the past two years. Innere Stadt is Vienna’s most luxurious and least populated district, with roughly 17,000 inhabitants. But with a workforce of around 100,000, it is Vienna’s largest employment locale.

In the other upscale districts of Vienna, rents range from EUR 14 to EUR 15 per sq. m. per month.

Rents for Salzburg apartments are close to Viennese levels, at around from EUR 14 per sq. m. per month.

Apartments are more affordable in Graz, with rents ranging from EUR 9.50 to EUR 12.50 per sq. m. per month.

Vienna has one of the highest percentages of renter households in the world, with about 75% of homes rented. In Austria as a whole, households own 56.4% of primary residences, while 41.2% are rented, according to a recent Austrian microcensus. Austria’s home ownership rate is way below the EU-27’s average rate of more than 70%.

The high percentage of rented residential properties is due to the large proportion of subsidized low-rent apartments in the general rental market, according to Martin Schneider of the Oesterreichische Nationalbank (OeNB).  Limited tax incentives for home ownership also contribute to the high proportion of renters.

Interest rates at record lows

Austria interest rates

Interest rates continue to decline in Austria, following European Central Bank key rates. In January 2016, the average interest rate for new housing loans was 1.93%, down from 2.01% in December 2015 and 1.98% a year earlier.

For new loans, average interest rates in January 2016 were:

  • Interest rate fixation under 1 year: 1.84%, down from 1.91% a year earlier, and the lowest in almost two decades
  • IRF over 1 and up to 5 years: 1.75%, down from 2.15% a year earlier, and the lowest since data was first published in January 2003
  • IRF over 5 years and up to 10 years: 2.59%, down from 2.75% a year earlier
  • IRF over 10 years: 2.54%, down from 2.79% a year earlier

For outstanding housing loans, interest rates were at their lowest levels since data was first published 13 years ago:

  • IRF of up to 1 year: 2.05%, down from 2.23% a year ago
  • IRF over 1 and up to 5 years: 2.21%, down from 2.42% a year earlier
  • IRF over 5 years: 2.06%, down from 2.23% a year earlier

The ECB key rate is currently at its all-time low of 0.05%, after a 10-basis-points rate cuts made by the ECB both in June 2014 and in September 2014.

Austria’s mortgage market remains small

In 2015, the size of the Austrian mortgage market increased to 37.3% of GDP, from 34.96% of GDP in 2014, 30.4% of GDP in 2008, 21.2% of GDP in 2001 and 16.36% of GDP in 1995.

Austria housing loans

Austria is relatively under-mortgaged: the EU's average 50% of GDP.

In 2015, the total amount of outstanding housing loans was EUR 125.03 billion (US$ 139.44 billion), up by 8.6% from a year earlier, according to the OeNB. Housing loans have more than tripled from just EUR41.15 billion (US$45.89 billion) in 2000.

Mortgage growth has been accompanied by an increase in foreign-currency denominated loans from around 7% of total housing loans in 2000, to 20% in 2013 and finally to more than 23% in 2014.

Meagre economic growth in 2015

Austria GDP inflation

Austria’s economy was estimated to grown by just 0.9% in 2015, after expanding by 0.4% in 2014, 0.3% in 2013 and 0.8% in 2012, according to the Austrian Institute of Economic Research (WIFO). The country’s economy is expected to grow by 1.6% for 2016 and 2017, based on forecasts released by WIFO.

However, the recent announcement that Carinthia province is now facing threat of insolvency over guarantees it made for Hypo Alpe Adria bank is a major blow to Austria’s economy. Carinthia’s local officials said that the province cannot afford to honour the EUR 10.8 billion in guarantees for Hypo Alpe Adria. Worse, creditors rejected a proposal offered by the Austrian government to buy back their bonds – a deal that could have saved the Austrian province from a possible bankruptcy. This could drag the entire economy down this year.

The Austrian economy is mainly driven by exports, mostly to its biggest 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%. After contracting by 3.8% in 2009, the economy emerged from recession with growth rates of 1.9% in 2010 and 2.8% in 2011.

Austria’s budget deficit was estimated at about 1.6% of GDP in 2015, down from around 2.7% in 2014, 1.3% in 2013 and 2.2% in 2012, according to the OeNB. The budget deficit is projected to slightly increase to 1.7% of GDP in 2016 and to stay at that level in 2017. The country’s gross public debt was estimated at 85.9% of GDP last year, up from 84.2% of GDP in 2014, according to the European Commission. The gross public debt is expected to fall to 85.1% of GDP this year and to 84% in 2017.

Unemployment stood at 5.9% in January 2016, up from 5.5% in the same period last year, mainly due to the influx of refugees in the past several months, according to the Eurostat. Despite this, Austria’s jobless rate remains well below the EU average of 8.9%. Austria’s unemployment rate is projected to reach 6.2% this year and 6.4% in 2017, according to the European Commission.

In February 2016, the country’s annual inflation rate slowed to 1%, from 1.2% in the previous month, mainly due to falling oil prices, according to Statistics Austria. However, this was higher than the EU’s average inflation of -0.2% in February 2016. Inflation is expected at 0.9% this year, before accelerating to 1.8% next year, according to the European Commission.

Influx of migrants increases jobless and crime rates

Austria unemployment

In the midst of Europe’s ongoing migrant crisis, Austria’s total population increased by 115,000 people in 2015 to reach almost 8.7 million, according to Statistics Austria. This was significantly higher than the increase of around 77,000 people in 2014. In 2015, the number of Syrians entering Austria was 21,800, Afghanis 18,300 and Iraqis 10,000.

The country’s unemployment rate rose by nearly half a million in January 2016, up by 10% from the same period last year.

Vienna has experienced the highest population growth in 2015, taking in 43,200 people to reach a total population of 1.84 million. Of the 141,718 registered unemployed in the city last year, around 58,000 were foreigners, representing a 17% annual increase in the number of jobless foreigners in the city.

Alarmingly, more than half of all asylum seekers in Austria commit crimes, according to a new report released by Statistics Austria. More specifically, from 2004 to 2014, almost every other migrant had committed some kind of criminal offence after coming to the country and seeking asylum. The report revealed that about 80% of the criminals were young men. Moreover, a number of suspected jihadis were detained last year after a series of raids in cities across Austria.

Following the failure of its open borders policy, the Austrian government revealed its plan to deport about 50,000 failed asylum seekers over the next four years. In addition, the government is also seeking to limit the number of new asylum seekers at 37,500 this year as compared to about 90,000 in 2015.

“We are already among the countries with the most expulsions, but we will step up the pace and will increase the upward trend,” said Interior Minister Johanna Mikl-Leitner.

In fact in February 2016, Mikl-Leitner announced that the “Balkan route”, the main passage used by migrants, commonly from the Middle East, to reach affluent countries to the north, will be closed permanently.

Foreign Minister Sebastian Kurz also added that it is important “to end our open door policy and not let so many refugees into the country in future”.






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