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Financial Information for Residential Property Buyers


Austrian house prices continue to rise strongly

Lalaine C. Delmendo | January 25, 2019

Austria house pricesAustrian housing prices continue to rise strongly, as economic growth picks up. During the year to Q3 2018, the residential property price index in Austria was up by 7.97% (5.71% in real terms), after y-o-y rises of 4.94% in Q2 2018, 7.32% in Q1 2018, 4.7% in Q4 2017, and 4.56% in Q3 2017, based on figures from the Oesterreichische Nationalbank (OeNB). During the latest quarter, nationwide property prices increased 2.83% (2.57% in real terms) in Q3 2018.

  • House prices in Vienna, Austria’s capital, rose by 6.54% during the year to Q3 2018 (4.31% in real terms). During the latest quarter, Vienna’s residential property price index increased 2.92% (2.66% in real terms) from the previous quarter.
  • In the rest of Austria, the residential property price index rose sharply by 9.71% (7.42% in real terms) in Q3 2018 from a year earlier. In Q3 2018, house prices increased 2.62% (2.36% in real terms) from the previous quarter.

Statistics Austria’s figures were more muted, reporting that the overall house price index rose by 4.9% (2.71% in real terms) during the year to Q3 2018, following y-o-y price rises of 3.74% in Q2 2018, 5.34% in Q1 2018, 6.55% in Q4 2017 and 4.86% in Q3 2017.

By property type:

  • For new dwellings, the average price dropped slightly by 0.6% (-2.68% in real terms) during the year to Q3 2018, and fell by 0.79% (-1.04% in real terms) from the previous quarter, according to Statistics Austria.
  • For existing dwellings, the average price rise was 6.97% (4.73% in real terms) y-o-y in Q3 2018 and increased 2.42% (2.16% in real terms) from the previous quarter.
  • For existing houses, the average price rose by 4.9% (2.7% in real terms) in Q3 2018 from a year earlier and by 3.64% (3.38% in real terms) from the previous quarter.
  • For existing flats, the average price surged 8.64% (6.37% in real terms) y-o-y in Q3 2018, and increased 1.49% (1.23% in real terms) from the previous quarter.

Supply is falling despite robust demand. In the first three quarters of 2018, the total number of apartments approved for construction in Austria dropped 5.6% y-o-y to 54,494 units – after rising annually by 9% from 2013 to 2017. Total housing loans rose by 7.1% in November 2018 from a year earlier, to reach EUR 111.89 billion (US$ 127.25 billion), according to the European Central Bank (ECB).

Austria’s economy grew by 2.7% in 2018, an improvement from last year’s 2.6% growth, according to the Oesterreichische Nationalbank. The economy is expected to expand by 2% in 2019, and by another 1.9% in 2020, according to the country’s central bank.

There are no restrictions on foreigners buying properties in Austria.

Property transactions continue to rise

The value of property transactions rose by 4.6% in 2017 from a year earlier to EUR 28.1 billion (US$ 31.96 billion), according to Oesterreichische Nationalbank (OeNB). In 2018, property transactions were estimated to have risen further, amidst higher purchasing power and improving economic conditions.

“Since the economic crisis in 2008, investors are looking for a safe investment, and interest rates are very low,” said Peter Marschall of Marschall Real Estate in Vienna.

There’s also been higher demand for new apartments, especially from foreign homebuyers. 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, said Marschall. In fact during the year to Q3 2018, prices of new apartments in Vienna and the rest of Austria rose by 4.82% (2.63% in real terms) and 6.25% (4.03% in real terms), respectively. 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.

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.

According to Bank Austria, the growing number of 25- to 44-year-olds in Austria will raise the demand for housing in the next few years. Over the next ten years, this demographic is expected to increase by an average of 0.5% annually.

Austria has a total population of almost 8.9 million. The capital and the largest city of Vienna accounts for more than 20% of the population.

Differences in local house prices

Austria house price index

Vienna is ranked as the world’s best city to live in, in terms of quality of life, according to the 20th Mercer Quality of Life study published in 2018. The study examined social and economic conditions, health, education, housing and the environment.

"Vienna tops the ranking for the 9th 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.

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 January 2019, Innere Stadt apartments cost on average around EUR 13,297 (US$ 15,122) per sq. m., according to the Immopreise.at.  Prices even reach EUR 30,000 (US$ 34,117) 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 6,000 (US$ 6,823) to EUR 10,000 (US$ 11,372) per sq. m.

In Graz, houses cost, on average, EUR 3,459 (US$ 3,934) per sq. m. in January 2019, according to the Immopreise.at. On the other hand, Salzburg houses cost around EUR 6,325 (US$ 7,193) per sq. m. over the same period.

The long boom

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). Property prices in the rest of Austria rose much less, by just 37.1% (11.1% in real terms) from 2003 to 2013. Prices in Vienna rose by 4.2% (2.6% in real terms) in 2014, while prices in the rest of Austria were up by 3.1% (1.4% in real terms).

In the following years, this trend was reversed, as the capital city had become expensive. Vienna’s house prices rose by only 2.2% (1.3% in real terms) in 2015, while prices in the rest of Austria rose by 5.2% (4.2% in real terms). Vienna’s house prices rose by just 3.8% (2.8% in real terms) in 2016 and by 1.47% in 2017, while prices in the rest of Austria increased strongly by 9% (8% in real terms) in 2016 and by 4.9% (3.3% in real terms) in 2017.

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.

Housing permits falling

Austria building apartments

In the first three quarters of 2018, the total number of apartments approved for construction in Austria dropped 5.6% y-o-y to 54,494 units - from an annual average growth of 9% from 2013 to 2017.

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. Around 60,200 dwellings were completed in 2017, up from 56,400 units in 2016 and 50,100 units in 2015, according to Statistics Austria.

Austria dwellings stock

The total housing stock in Austria reached almost 4.65 million in 2017. Almost 52% were in multi-storey buildings, while less than 46% were in one- and two-family houses.

Currently, about two-thirds of Viennese citizens live in municipal or publicly subsidized housing, based on a recent 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.

Rental yields are low to moderate

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 1.72% for 130-sq. m. apartments to 2.33% for 50 sq. m. apartments, according to Global Property Guide research. At this kind of yield, no-one is buying an apartment to rent it out. These are the residences of the rich.

In Vienna’s other luxurious areas, such as Margereten, Mariahilfen, Favoriten, Hernals, or Leopoldstadt, rental yields range from nearly 5% for very small apartments, to 3% to 4.4% for large apartments.

Outside Vienna, Salzburg apartments offer gross rental yields ranging from 2.4% to 3.8%. 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.

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

The average residential rent in the country rose by 2.2% to EUR 518.7 (US$589.9) per month during the year to Q3 2018, according to the Oesterreichische Nationalbank (OeNB). The average rent of dwellings in Vienna rose by 54.8% from 2006 to 2017, slightly higher than the 48.5% increase for the entire country.

Innere Stadt apartments fetch one of the highest rents in Austria, ranging from EUR 18 to EUR 22 per sq. m. per month, according to Global Property Guide research. These rents have not increased in the past three 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 11 to EUR 19 per sq. m. per month.

Rents for Salzburg apartments are close to Viennese levels, at around from EUR 12 to EUR 17 per sq. m. per month.

Apartments are more affordable in Graz, with rents ranging from EUR 10 to EUR 14 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 OeNB. Limited tax incentives for home ownership also contribute to the high proportion of renters.

In Q3 2018, there were about 1,638,000 rented dwellings in Austria, up slightly by 0.2% from the same period last year, according to Statistics Austria.

Interest rates remain very low

Austria interest rates

In November 2018, the average interest rate for new housing loans fell slightly to 1.81%, from last year’s 1.87% average housing loan rate, according to Oesterreichische Nationalbank (OeNB).

Average interest rates for new loans in November 2018 were:

  • Interest rate fixation (IRF) under 1 year: 1.5%, a decline from 1.68% a year earlier and 1.8% two years ago.
  • IRF over 1 and up to 5 years: 1.65%, up from 1.62% last year and 1.52% two years ago.
  • IRF over 5 years and up to 10 years: 2.03%, down from 2.09% the previous year and 2.16% two years ago.
  • IRF over 10 years: 2.24%, up from 2.2% a year earlier and 2.1% two years ago.

For outstanding housing loans, the average interest rate was 1.82% in November 2018, down from 1.85% in the previous year and 1.96% in November 2016. Over the same period:

  • Maturity of up to 1 year: 1.75%, unchanged from a year earlier but down from 1.9% two years ago.
  • Maturity of over 1 and up to 5 years: 1.75%, slightly up from 1.72% a year earlier but down from 2.06% two years ago.
  • Maturity of over 5 years: 1.82%, down from 1.86% a year earlier and 1.95% 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 28.9% of GDP in 2018, up from 17.1% of GDP in 2003. Austria is relatively under-mortgaged: the EU’s average is 50% of GDP. As of November 2018, total housing loans stood at EUR 111.89 billion (US$ 127.25 billion), up by 7.1% from a year ago, according to the ECB.

Austria housing loans

The share of foreign-currency denominated mortgage loans is declining. From 18.8% in 2016, its share to total mortgage loans fell to 15.7% in 2017 and finally to just 12.3% in September 2018. About 97% of these foreign-currency denominated loans were in Swiss franc (CHF).

Housing loans, as percent of disposable income, stood at 50.7% in Q3 2018, from 50.2% in 2016 and 51.6% in 2017.

Economy improving

Austria GDP inflation

Austria’s economy grew by 2.7% in 2018, a slight improvement from last year’s 2.6% growth, according to the Oesterreichische Nationalbank. The Austrian economy has stagnated in recent 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 three years at 2% in 2019, 1.9% in 2020 and 1.7% in 2021, according to the country’s central bank. 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 1.8% in 2010 and 2.9% in 2011.

Austria is expected to achieve a balanced budget this year before posting a surplus of 0.1% of GDP in 2020, according to the European Commission. The country’s gross public debt was estimated at 74.5% of GDP in 2018, down from 78.3% in 2017 and 83.6% in 2016, and is projected to drop further to 71% of GDP this year. Austria’s budget deficit was predicted at around 0.3% of GDP in 2018, down from 0.8% in 2017 and 1.4% in 2016.

Unemployment was 4.7% in November 2018, down from 5.5% in the same period last year, according to Statistics Austria. Austria’s jobless rate remains well below the Euro area’s average of 7.9% in November 2018.

Inflation stood at 2% in 2018, slightly down from last year’s 2.1% but well above the levels seen in 2015 and 2016, which was 0.9% annually, according to Statistics Austria. The central bank expects inflation at 2.1% this year and 2% in 2020.

Caps on refugees, the new right-wing government

Austria unemployment

Austria was among the EU members with the highest numbers of asylum applicants since 2015, with about 90,000 applications. 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.

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 introduced a cap of 80 asylum seekers a day allowed to enter the country to make an asylum application, while 3,200 persons are allowed to transit toward other countries.

The government also revealed a 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, would be closed permanently.

From January to November 2018, the Austrian government recorded just 12,529 asylum applications, sharply down from 23,151 in the same period last year and 39,813 two years ago.

In 2018, the number of asylum seekers was capped at 30,000.

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 May 2017 the ÖVP 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 held in October was won by the ÖVP which tool 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 insistence 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 has stopped the private housing of asylum seekers, providing instead only centralized accommodation facilities. Moreover, it also substantially reduced minimum social welfare support for recognized asylum seekers, reduced access to German courses and apprenticeship programs and take their cash to help pay for basic needs.

As Austria held the EU’s rotating presidency in 2018, Kurz has made curbing unregulated migration a priority not just in the country but in Brussels as well.

In October 2018, the Austrian government announced its withdrawal from the UN global migration pact to promote safe and orderly migration (known as the Global Compact for Safe, Orderly and Regular Migration).

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