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House prices soar outside the Austrian capital, but Vienna slows
- House prices in Vienna, Austria's capital, rose by a meagre 0.32% during 2017 and fell by 1.84% when adjusted for inflation. It was Vienna's slowest annual growth since 2003 when house prices fell by 3.04%. During the latest quarter, Vienna's residential property price index fell by 0.68% (-1.63% in real terms) from the previous quarter.
- While house price increase were subdued in the capital, the residential property price index in the rest of Austria rose sharply by 7.39% (5.08% in real terms) in 2017 from a year earlier. In Q4 2017, house prices increased 2.17% (1.19% in real terms) from the previous quarter.
Statistics Austria confirms this general picture, reporting that the overall house price index rose by 4.86% (2.65% in real terms) during the year to Q3 2017, following y-o-y price rises of 4.92% in Q2 2017, 4.75% in Q1 2017, 6.96% in Q4 2016 and 5.21% in Q3 2016.
By property type:
- For new dwellings, the average price rose by about 7.58% (5.32% in real terms) during the year to Q3 2017, and increased by 3.6% (3.5% in real terms) from the previous quarter, according to Statistics Austria.
- For existing dwellings, the average price was up by 3.95% (1.75% in real terms) y-o-y in Q3 2017 but fell by 0.7% (-0.7% in real terms) from the previous quarter.
- For existing houses, the average price surged by 7.14% (4.89% in real terms) in Q3 2017 from a year earlier and rose slightly by 0.4% (0.3% in real terms) from the previous quarter.
- For existing flats, the average price rose by just 1.47% (-0.66% in real terms) y-o-y in Q3 2017, but fell by 1.5% (-1.5% in real terms) from the previous quarter.
Supply and demand continue to rise. In the third quarter of 2017, around 20,600 apartments were approved for construction, up by more than 28% from the same period last year. Likewise in December 2017, total outstanding housing loans increased 3.1% y-o-y to EUR 104.29 billion (US$ 129.07 billion), according to the European Central Bank (ECB).
Austria's economy grew by 2.3% in 2017, up from last year's 1.5% growth and its fastest acceleration since 2011, according to the International Monetary Fund (IMF). The economy is expected to expand by 1.9% this year and by another 1.5% in 2019.
There are no restrictions on foreigners buying properties in Austria.
Prices have risen significantly in Vienna, and yields are moderate
For a long time home prices have been rising in Vienna. Result: gross rental yields - the return on investment on a property before all expenses - are no longer good. However, it all depends where you buy.
The basic rule is that yields are higher in less expensive districts
So yields are at their lowest in District 1 (Innere Stadt). 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.
Apartments in Innere Stadt change hands at around EUR 11,000 to EUR 13,000 per sq. m., whereas in the other areas apartments cost around only EUR 3,500 to EUR 7,800 per sq. m. Yields in Innere Stadt range from 1.7-2.3% At this kind of yield, no-one is buying an apartment to rent it out. These are the residences of the rich.
But acceptable yields can be had in districts such as Margereten, Mariahilfen, Favoriten, Hernals, or Leopoldstadt, where apartment costs vary enormously from EUR 3,500 to EUR 5,400 per sq. m.. In these districts, yields range from nearly 5% for very small apartments, to 3-4.4% for large apartments.
So one should choose one's district and size carefully. Since a large apartment is less trouble to manage than a couple of smaller ones, a largish apartment in Favoriten with a yield of 4.3% has attractions, for example.
Outside Vienna, Salzburg apartments tend to cost around EUR 5,300 to EUR 6,300 per sq. m. Rents on Salzburg apartments are close to Viennese levels, at around from EUR 12-17 per sq. m. per month. Salzburg gross rental yields range from 2.4% to 3.8%.
Apartments are most affordable in Graz, where apartments cost, on average, EUR 3,300 to EUR 4,400 per sq. m. In Graz, rents range from EUR 10.00 to EUR 13.50 per sq. m. per month. Gross rental yields in Graz are slightly better than in Salzburg - ranging from 2.5% to 4.9%. The smallest apartments return the highest rental yields.
Rental income tax is high in Austria
Rental Income: Tax rates in Austria are highly progressive, so that owners of larger properties are likely to have to pay heavily, though deductions are available.
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: Capital gains realized from properties which were acquired as of 31 March 2002 is subject to capital gains tax at a flat rate of 27.50%.
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.
Buying costs are high in Austria
Total roundtrip transaction costs are high at between 9.40% and 13% of the property value or sales price. Bear in mind that Austrian lawyers charge on a per hour basis, at rates fixed by the lawyers’ association, so that a lawyer’s costs may be proportionately higher for small apartments. It takes about 32 days to complete the three procedures needed to register a property.
Austria has a pro-tenant rental market law
Austrian law is tenant-friendly, with rent control at somewhat below free-market levels.
Austria houses 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.
Economy improvingAustria's economy grew by 2.3% in 2017, its fastest acceleration since 2011, according to the IMF. The Austrian economy has stagnated for the past five years, posting real GDP growth rates of just 0.7% in 2012, 0.1% in 2013, 0.6% in 2014, 1% in 2015, and 1.5% in 2016, according to the Austrian Institute of Economic Research (WIFO).
Austria's economic growth is expected to remain positive in the next two years at 1.9% in 2018 and 1.5% in 2019, according to the IMF. 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 predicted at around 1% of GDP in 2017, down from 1.4% of GDP in 2016, according to the European Commission. The deficit is expected to fall to 0.9% in 2018 and to 0.6% in 2019. The country’s gross public debt was estimated at 78.6% of GDP in 2017, down from 83.6% of GDP in 2016, and is projected to drop further to 76.2% of GDP this year.
Unemployment was 5.5% in November 2017, slightly down from 5.7% in the same period last year, according to Statistics Austria. Austria’s jobless rate remains well below the EU average of 8.7% in November 2017.
Inflation stood at 2.1% in 2017, up from last year’s 0.9% and the highest rate recorded since 2012, mainly driven by spending on housing, water and energy, as well as food and non-alcoholic drinks, according to Statistics Austria. Inflation is expected to slow to 1.6% in 2018, according to the European Commission.
Caps on refugees, the new right-wing government
Austria is among the EU members with the highest numbers of asylum applicants since 2015. The country received about 90,000 applications in 2015. Of which, Vienna took in 43,200 people to reach a total population of 1.84 million. Of the 141,718 registered unemployed in the city, around 58,000 were foreigners, representing a 17% annual increase in the number of jobless foreigners in the city.
Aside from having a direct effect on the country's unemployment rate, Statistics Austria also reported that more than half of all asylum seekers in Austria commit crimes. 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 in 2016 after a series of raids in cities across Austria.
As such, the government announced in January 2016 that they would set a maximum number of 37,500 asylum applicants annually in the next four years. The following month, Austria started putting a cap of 80 asylum seekers a day, that are allowed to enter the country for asylum application, while only up to 3,200 persons are allowed to transit toward other countries.
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 fact in February 2016, the Minister of Interior Johanna 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.
From January to October 2017, the Austrian government recorded just 21,130 asylum applications, sharply down from 37,256 in the same period last year.
The immigration crisis has had a substantial political impact. In the legislative elections of 2013, the Social Democratic Party (SPŐ) and the Austrian People's Party (ÖVP) - a Christian Democratic party - emerged with the highest number of seats (27% of the vote and 52 seats for the SDP, and 24% and 47 seats for the People's Party) and formed a 'grand coalition'.
However in a sign of rising concern over the issue helped bring about a change of leadership within the ÖVP which in May 2017 elected a new young leader, the right-wing populist Sebastian Kurz. Kurz had previously called for stricter controls on migrants, and steered through an Islamgesetz (Islam Law) prohibiting the funding of mosques by entities from abroad, paying imams' salaries, and regulating the version of the Quran that may be used in Austria.
Partly as a result of his leadership the Grand Coalition broke in mid-2017, and a snap election was held in October which was won by the ÖVP with its with 31.5% of votes and 62 of the 183 seats. The SPŐ was second with 26.9% and 52 seats. The ÖVP disdained its previous socialist partners and formed an alliance with the newly-strong right-wing Freedom Party of Austria (FPÖ) which had finished in 3rd place, receiving 26% of the votes and 51 seats.
The victory of the center-right People’s Party (ÖVP) and the radical right Freedom Party (FPÖ) further strengthened the country’s instance on restricting immigration and limiting support for immigrants. As Chancellor Kurz has brought Austria closer to the Visegrad Group, particularly the Eurosceptic and populist governments of Andrej Duda in Poland, Victor Orban in Hungary, and Milos Zeman in the Czech Republic.
The new government recently announced it plans to stop the private housing of asylum seekers, providing instead only centralized accommodation facilities. Moreover, it also plans to substantially reduce minimum social welfare support for recognized asylum seekers and take their cash to help pay for basic needs.