House prices rise strongly
Lalaine C. Delmendo | February 12, 2022
Analysis of Austria Residential Property Market »
Property prices continue to rise in Austria and yields are poor
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 Innere Stadt, apartment prices range from EUR 15,000 to EUR 25,000 per square metre (sq. m.) and rents range from EUR 19 to EUR 24 per square metre (sq. m.). Gross rental yields in Innere Stadt range from 1.14% to 1.82%, roughly the lowest rental yields in Vienna. 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 Leopoldstadt, Margereten, Favoriten, Simmering, Meidling, and Brigittenau, where apartment prices are around EUR 5,000 to EUR 11,000 per square metre (sq. m.). Margereten apartments can be rented out at around EUR 13 to EUR 19 per square metre (sq. m.) and tend to cost around EUR 5,000 to EUR 9,000. Leopoldstadt is somewhat close to Margereten, where apartments cost around EUR 6,000 to EUR 7,000 per square metre (sq. m.) and rents range from EUR 15 to EUR 21 per square metre (sq. m.) per month. Gross rental yields in these districts range from 2% to 4%.
In Salzburg, approximately 200 miles apart from Vienna, apartment prices tend to be around EUR 6,997 to EUR 10,907 per square metre (sq. m.). Rents in Salzburg apartments range from EUR 14 to EUR 18 per square metre (sq. m.), which is pretty close to Viennese levels. Salzburg's gross rental yields range from 1.55% to 3.12%.
More affordable apartments can be found in Graz, where apartments cost, on average, EUR 4,738 to EUR 5,096 per square metre (sq. m.) And rents range from EUR 9.96 to EUR 13.21 per square metre (sq. m.) per month. Gross rental yields in Graz are slightly better than in Salzburg - ranging from 2.52% to 3.29%.
Round trip transaction costs are high residential property in Austria. See our Residential transaction cost analysis for Austria.
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 30%.
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 recovers
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.