Austria Real Estate Market Analysis 2022
Austrian housing prices continue to rise strongly, on the back of robust demand and weak residential construction activity. During the year to Q1 2022, the residential property price index in Austria was up by a huge 12.36% (6.16% in real terms), at par with the previous year’s growth and the second biggest y-o-y rise since Q2 2012, according to figures from the country’s central bank OesterreichischeNationalbank (OeNB). During the latest quarter, nationwide property prices increased 3.74% q-o-q (2.04% in real terms).
- House prices in Vienna, Austria’s capital, rose by 11.85% during the year to Q1 2022 (5.68% in real terms), the highest growth in nine years. During the latest quarter, Vienna’s residential property price index increased 3.75% (1.68% in real terms) from the previous quarter.
- In the rest of Austria, the residential property price index rose by a huge 12.85% (6.62% in real terms) in Q1 2022 from a year earlier – one of the biggest y-o-y increase in recent history. On a quarterly basis, house prices increased 3.68% (1.61% in real terms) in Q1.
This is supported by figures from Statistics Austria, which showed that the overall house price index rose by 13.66% during the year to Q1 2022 (7.39% in real terms), following y-o-y rises of 15.38% in Q4 2021, 12.65% in Q3, 11.8% in Q2 and 9.75% in Q1.
Source: Oesterreichische National Bank
By property type:
- For new dwellings, the average price rose by 14.61% (8.29% in real terms) during the year to Q1 2022, a sharp improvement from the previous year’s modest growth of 3.11%.
- For existing dwellings, the average price increase was 13.3% (7.04% in real terms) in Q1 2022 from a year earlier, following a 12.26% rise in Q1 2021.
- For existing houses, the average price rose by 12.33% y-o-y (6.13% in real terms) in Q1 2022, at par with the prior year’s 12.09% growth.
- For existing flats, the average price was up by 14.05% (7.75% in real terms) y-o-y in Q1 2022, slightly up from the previous year’s 12.37% rise.
Construction activity is falling, despite robust demand – adding more upward pressure to house prices. Housing permits have been falling in the past two years, amidst the coronavirus pandemic. During 2021, the total number of dwellings approved for construction in Austria fell by 6.1% y-o-y to 72,377 units, following a 9.3% decline in 2020, based on figures released by Statistics Austria.
During 2021, the total number of residential property transactions increased 9.1% to 86,100 units, according to the OeNB. Likewise, transaction volume was also up by a huge 21.2% to EUR 30.3 billion (US$31.6 billion) over the same period.
As of May 2022, the total amount of housing loans outstanding rose by 8.2% to EUR 139.04 billion (US$ 144.78 billion) from a year earlier, according to figures from the OeNB.
The housing market is expected to continue growing this year, as people consider real estate as a hedge against economic uncertainties and risks.
Austria’s export-reliant economy grew by 4.8% during 2021, following a 6.7% contraction in 2020, as Covid-19 related restrictions ease across the region, according to the OeNB. Then in Q1 2022, the economy expanded strongly by 9.5% y-o-y, up from the previous quarter’s 6.3% growth, supported by almost all sectors of the economy, in particular construction, industry, trade, and food and accommodation.
Despite this, the European Commission expects the Austrian economy to grow only modestly by 3.9% this year – a slightly more optimistic outlook as compared to OeNB’s forecast of a 3.8% growth – amidst Russia’s invasion of Ukraine and surging food and commodity prices.
Differences in local house prices
Vienna is ranked as the world’s best city to live in, in terms of quality of life, according to the 21st Mercer Quality of Life study published in 2019 (Mercer did not publish a study since in light of the ongoing changes in living conditions happening worldwide due to the effects of the COVID-19 pandemic and crisis in Ukraine). In fact, the Austrian capital has had the world’s highest quality of living for a decade now. The study examined social and economic conditions, health, education, housing and the environment.
“Globally, Vienna tops the ranking for the 10th year running,” said Mercer. “Vienna remains the highest ranking city in Europe and globally, providing resident and expatriates with high security, well-structured public transportation and a variety of cultural and recreation facilities,” Mercer added. It is a no brainer that these qualities have attracted a lot of foreign investors into purchasing homes.
Wealthy Eastern Europeans are attracted to Austria due to cultural similarities, and see Vienna as a very safe environment and a safe haven for their investments. There are no restrictions on foreigners buying properties in Austria.
In the high-end residential market, Austrians represent about 60% of property buyers while the remaining 40% are foreigners, mainly from Eastern European countries like Russia and Ukraine.
Vienna’s “super prime” area, on the other hand, attracts a more diverse set of foreign buyers. Some of these come from Switzerland, the United States, the Middle East, and Hong Kong, according to Otto Immobilien Gruppe’s head of residential marketing, Richard Buxbaum.
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 Vienna’s luxury and secondary home market. In June 2022, Innere Stadt apartments cost on average around EUR 21,774 (US$22,706) per sq. m., up strongly by 30.7% from a year earlier, according to the Immopreise.at. Prices even reach EUR 30,000 (US$ 31,290) per sq. m. in exceptional cases. Slightly lower prices are seen in surrounding areas such as the 2nd to the 9th districts. Prices of condos or villas in the 19th, 18th, and 13th districts range from EUR 7,600 (US$7,926) to EUR10,000 (US$10,429) per sq. m.
In Graz, houses cost, on average, EUR 3,890 (US$4,056) per sq. m. in June 2022 according to the Immopreise.at. In Linz, houses cost about twice as much, at around EUR 8,223 (US$8,575) per sq. m. On the other hand, Salzburg houses are currently offered for an average price of EUR 8,899 (US$9,280) per sq. m.
The long boom
House prices in Vienna have been rising consistently since Q3 2004. During first decade of the housing boom (2003-2014), house prices in the capital soared by 114% (70% in real terms). Property prices in the rest of Austria rose much less, by just 37% (9% in real terms) from 2003 to 2014.
In the following years, this trend was reversed, as the capital city had become expensive. Vienna’s house prices rose by almost 41% (24.6% in real terms) from 2015 to 2021, while the rest of Austria registered stronger growth of more than 56% (38.4% in real terms).
Why did Vienna’s house prices rise faster than the rest of Austria from 2004 to 2014? It is puzzling, but 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.
In the past two years, the housing market surprisingly strengthened, despite the Covid-19 pandemic. Nationwide house prices rose by 10% in 2020 and by another 12.5% in 2021. In Vienna, house prices increased strongly by 9.4% and 11.3%, respectively, in the past two years.
Housing permits falling
Housing permits have been falling in the past two years, amidst the coronavirus pandemic. During 2021, the total number of dwellings approved for construction in Austria fell by 6.1% y-o-y to 72,377 units, following a 9.3% decline in 2020, based on figures released by Statistics Austria.
Housing permits grew by an average of 9% annually from 2013 to 2017. After declining by 14% in 2018, permits rose again by 11.4% in 2019.
The number of new dwellings built in Austria was around 66,000 units yearly in the 1990s, but the number fell to about 40,000 units a year during 2001-2004. In 2020 (the latest figures available at the Statistics Austria), about 68,000 dwellings were completed, down slightly by 1% from a year earlier.
The total dwelling stock as main residences in Austria was about 4 million in 2021, up by 0.8% from a year earlier and by more than 10% from a decade ago. Vienna accounted for 23% of the stock, followed by Lower Austria (18.5%), Upper Austria (16.2%), and Styria (13.9%).
Currently, about two-thirds of Viennese citizens live in municipal or publicly subsidized housing, as noted in an article by The Guardian. About 80% of flats built in Vienna are financed by the city’s housing subsidy scheme. Vienna’s local government plans a 30% boost in housing construction implying that about 13,000 new homes will be built in Vienna every year, up from the current 10,000.
Low rental yields
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.
Property prices in Vienna continue to increase amid the pandemic. Therefore, you can expect that gross rental yields - the return on investment on a property before all expenses - are weak. But you can generate higher yields in less expensive districts. It all depends where you buy.
In Vienna’s Innere Stadt (Old Town), gross rental yields are poor, ranging from only 1.14% to 1.82%, roughly the lowest rental yields in Vienna, according to a Global Property Guide research conducted May 2022. With this kind of rental return, no-one is buying a property to be purely to be rented out. Innere Stadt is considered the most expensive district of Vienna by price per square metre.
But moderate yields can be generated in Vienna’s other luxurious areas, such as Leopoldstadt, Margereten, Favoriten, Simmering, Meidling, and Brigittenau. Gross rental yields in these districts range from 2% to 4%.
Outside Vienna, Salzburg apartments offer gross rental yields ranging from 1.55% to 3.12%. Gross rental yields in Graz are slightly better than in Salzburg - ranging from 2.52% to 3.29%. The smallest apartments return the highest rental yields.
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. Rents have been continuously rising since, albeit at a moderate pace of about 4% annually. Moreover, the continued increase in home prices in Austria, especially in Vienna, has resulted to a fall in rental yields.
Large rental market
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 homeownership rate of about 55% 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 OeNB. Limited tax incentives for home ownership also contribute to the high proportion of renters.
There were about 1.7 million rented dwellings in Austria in Q1 2022, up by 0.9% from the same period last year.
In Q1 2022, the average rent (excluding running costs) per dwelling in the country rose by a modest 2.1% y-o-y to EUR 421.9 (US$ 440) per month, according to Statistics Austria. If measured per square meter, the increase in average rent is more muted at 1.6% to EUR 6.3 (US$6.6) over the same period.
Interest rates remain low
In April 2022, the average interest rate for new housing loans was 1.36%, up from 1.19% a year earlier but unchanged from two years ago, according to the OesterreichischeNationalbank (OeNB).
Average interest rates for new loans in April 2022 were:
- Interest rate fixation (IRF) under 1 year: 1.01%, slightly up from 0.96% a year earlier but down from 1.15% two years ago.
- IRF over 1 and up to 5 years: 1.49%, up from 1.31% last year and 1.36% two years ago.
- IRF over 5 years and up to 10 years: 1.49%, up from 1.38% in April 2021 but down from 1.59% in April 2020.
- IRF over 10 years: 1.52%, up from 1.35% a year earlier but at par with 1.51% two years ago.
For outstanding housing loans, the average interest rate was 1.4% in April 2022, down from 1.48% in the previous year and 1.68% in April 2020. Over the same period:
- Maturity of up to 1 year: 1.32%, down from 1.36% % a year earlier and from 1.59% two years ago.
- Maturity of over 1 and up to 5 years: 1.31%, a decline from 1.37% a year earlier and from 1.62% two years ago.
- Maturity of over 5 years: 1.4%, down from 1.49% a year earlier and 1.69% two years ago.
The persistently low mortgage rates are partly attributable to the European Central Bank’s (ECB) reduction of its key rate to a record-low of 0.00% in March 2016, where it has remained since.
Mortgage market is still small
In terms of size, the Austrian mortgage market has expanded to 33.75% of GDP in 2021, up from 17.1% of GDP in 2003, based on estimates by the Global Property Guide. Austria is relatively under-mortgaged: the EU’s average is 50% of GDP.
In May 2022, the total amount of housing loans outstanding rose by 8.2% to EUR 139.04 billion (US$ 144.78 billion) from a year earlier, according to figures from the OeNB. Of which, 95% were housings loans drawn to Austrian households while the remaining 5% were loans to households in other Euro area member states.
By maturity (in May 2022):
- Maturity of up to 1 year: EUR 1.59 billion (US$1.66 billion), up 6.1% from a year earlier
- Maturity of over 1 and up to 5 years: EUR 4.43 billion (US$4.62 billion), up 10.2% from May 2021
- Maturity of over 5 years: EUR 126.51 billion (US$131.91 billion), up 7.3% from a year ago
The share of foreign-currency denominated mortgage loans continues to decline. From 18.8% in 2016, its share to total mortgage loans fell to just 8% in Q1 2021 and to less than 7% in Q1 2022, according to the central bank’s June 2022 Financial Stability report. About 97% of these foreign-currency denominated loans were in Swiss franc (CHF).
Housing loans accounted for more than 70% of households’ total outstanding loans in Q1 2022.
Austria’s export-reliant economy grew by 4.8% during 2021, following a 6.7% contraction in 2020, as Covid-19 related restrictions ease across the region, according to the OeNB. 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.
In Q1 2022, the economy expanded strongly, registering a real GDP growth rate of 9.5% y-o-y, up from the previous quarter’s 6.3% growth, supported by almost all sectors of the economy, in particular construction, industry, trade, and food and accommodation.
The European Commission expects the Austrian economy to grow by 3.9% this year – a slightly more optimistic outlook as compared to OeNB’s forecast of a 3.8% growth.
“Economic activity recovered in 2021 on the back of strong pent-up demand and the relaxation of sanitary containment measures, and is set to expand by 3.9% in 2022 and 1.9% in 2023,” said the European Commission in its Spring 2022 Economic Forecast report. “However, Russia’s invasion in Ukraine and associated high energy prices, as well as disrupted supply chains, are set to slow the upswing.”
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 1.8% in 2010 and 2.9% in 2011. Though the economy has stagnated in recent years even before the pandemic, posting an average real GDP growth rate of 1.3% annually from 2012 to 2019.
In 2020, the country recorded a huge budget deficit of 8% of GDP, in sharp contrast to surpluses of 0.6% of GDP in 2019 and 0.2% of GDP in 2018, according to Statistics Austria, as government spending surge to ease the impact of the Covid-19 crisis. As economic activity gradually returns to its pre-pandemic level, the budget shortfall fell to 5.9% of GDP in 2021 and is expected to decline further to about 3.1% of GDP this year, according to figures from the European Commission.
Though the country’s gross public debt was estimated to fall only slightly to about 80% of GDP this year, from 82.8% in 2021 and 83.3% in 2020. The public debt was just 70.6% of GDP in 2019 before the Covid-19 pandemic.
In June 2022, the unemployment rate fell to 5.5%, compared to 5.7% in the previous month and 7% a year earlier. It was the lowest jobless rate since September 2008, as the labour market continuously improves. Unemployment increased to 6% in 2020 and 6.2% in 2021, from an average jobless rate of 5.5% from 2009 to 2019, mainly due to the pandemic.
“The unemployment rate is forecast to drop to precrisis levels, reaching 5.0% in 2022 and 4.8% in 2023… in line with the revival of the labour intensive tourism and services sectors and the projected economic expansion,” said the EC.
There were 228,900 unemployed persons in Austria in June 2022, down by a huge 20.8% from a year earlier, according to figures from the OeNB.
Nationwide inflation climbed to 8.7% in June 2022, up from 7.7% in the previous month and the highest level since September 1975, according to Statistics Austria. Inflation averaged less than 2% from 2011 to 2021.
Refugees rising sharply due to Ukraine crisis; Nehammer maintains tough stance
For the first time ever, Austria’s population has breached the 9-million mark, after its population increased by about 48,000 people in Q1 2022 – more than in all of 2021.
“The population has grown faster than expected due to refugee migration from Ukraine,” said Tobias Thomas, Director General at Statistics Austria. “In the first quarter of 2022, the population increased by around 48,000 people, a good 40,000 of whom are Ukrainians nationals.”
The majority of Ukrainian nationals live in Vienna, followed by Lower Austria and Burgenland.
In 2021, asylum applications increased substantially by a whopping 170% to 39,930, with about two-thirds of the applications coming from Syrians and Afghans.
With the surge in the number of refugees and asylum applications in Austria, Chancellor Karl Nehammer vowed to maintain a tough stance on immigration. “It is important to me as the new leader of the People’s party that we hold our lines, that we say clearly what is necessary when it comes to the issue of migration and asylum, when it comes to the issue of security for people in our country,” Nehammer said.
In a separate occasion, Nehammer reiterated that many would abuse the current situation, adding that Austria’s Ukrainian refugees have ballooned in recent months but majority of them are not registered.
“We must be very careful that this incredibly dramatic war does not mask many other security problems,” Nehammer noted.
- House price index and OOH PI (Statistics Austria): https://www.statistik.at/en/statistics/national-economy-and-public-finance/prices-and-price-indices/house-price-index-and-ooh-pi
- Property prices continue to rise in Austria and yields are poor (Global Property Guide): https://www.globalpropertyguide.com/Europe/Austria/Rental-Yields
- Prices, competitiveness (OesterreichischeNationalbank): https://www.oenb.at/isaweb/dyna1.do?lang=EN&go=initHierarchie
- Interest rates of credit institutions (OesterreichischeNationalbank): https://www.oenb.at/en/Statistics/Standardized-Tables/interest-rates-and-exchange-rates/Interest-Rates-of-Credit-Institutions.html
- Financial Stability Report (OesterreichischeNationalbank): https://www.oenb.at/en/Publications/Financial-Market/Financial-Stability-Report.html
- Economic forecast for Austria (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/austria/economic-forecast-austria_en
- Consumer price index (CPI/HICP) (Statistics Austria): https://www.statistik.at/en/statistics/national-economy-and-public-finance/prices-and-price-indices/consumer-price-index-cpi/-hicp
- Forecasts and economic assesments of key economic indicators - austrian forecasters (OesterreichischeNationalbank): https://www.oenb.at/isaweb/report.do?lang=EN&report=7.2.1
- Housing costs (Statistics Austria): https://www.statistik.at/en/statistics/population-and-society/housing/housing-costs
- Building permits (Statistics Austria): https://www.statistik.at/en/statistics/population-and-society/housing/building-permits
- Quality of living city ranking (Mercer): https://mobilityexchange.mercer.com/insights/quality-of-living-rankings
- Vienna tops Mercer’s 21st Quality of Living Ranking (Mercer): https://www.mercer.com/newsroom/2019-quality-of-living-survey.html
- Austria Relocates 70,000 Children From Ukraine to Its Territory (Schengen Visa News): https://www.schengenvisainfo.com/news/austria-relocates-70000-children-from-ukraine-to-its-territory/
- UPDATE: Almost 120,000 refugees have arrived in Austria from Ukraine (The Local): https://www.thelocal.at/20220314/update-almost-120000-refugees-have-arrived-in-austria-from-ukraine/
- Ukrainian refugees push Austria’s population past nine million (The Local): https://www.thelocal.at/20220426/ukrainian-refugees-push-austrias-population-past-nine-million/
- Austrian chancellor warns of neglecting migration issues amid Ukraine war (Euractiv): https://www.euractiv.com/section/politics/short_news/austrian-chancellor-warns-of-neglecting-migration-issues-amid-ukraine-war/
- Immigration hardliner Karl Nehammer to take over as Austrian leader (The Guardian): https://www.theguardian.com/world/2021/dec/03/immigration-hardliner-karl-nehammer-to-take-over-as-austrian-leader
- Asylum (Statistics Austria): https://www.statistik.at/en/statistics/population-and-society/population/migration-and-naturalisation/asylum
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