Still rising, but more slowly

Vienna’s residential property market is rising more slowly, while the rest of the country accelerates. The residential property price index for Vienna rose by 4.07% for the year 2007 (1.99% in real terms). This was less than the 7.8% price rise in 2006 (5.73% real).

The property price index for Austria as a whole rose 5.05% in 2007 (2.95% real) in 2007, an advance on the previous year’s 2.23% increase (0.88% real).

As elsewhere in Europe, provincial prices have trailed those in the capital over the past 5 years. While property prices in Vienna have risen 21.44% (10.86% real) during 2002-2007, prices for the country as a whole have risen only 7.52% (a real decline of 1.85%) – so provincial prices as a whole have declined.

The performance of Austrian property has, all the same, been much better than that of its immediate neighbors. Swiss house prices, which bottomed out in 1999, rose only 2.36% in 2007. Germany’s residential prices rise only 0.99%.

The recent upturn in Vienna’s housing market can partly be attributed to the lack of quality supply combined with the trend to move to the city centre. The number of new dwellings built in Austria fell to about 40,000 units a year 2001-2004, from around 66,000 units yearly in the 1990s (more recent figures not available).

In Vienna: “Due to strong demand and little to no supply, prices have gone up by 20% over the past two years. Refurbished turn-of-the-19th/20th century apartments are especially in high demand. These units in the districts 1 to 9 have gone up in price to €3,500/sqm” (Colliers Austria market report 2007).

These prices are in the same ball-park as estimates by Global Property Guide research.

“In contrast to purchase prices, rents have remained stable at approximately the European average,” continues Colliers. “As a consequence, residential properties remain unattractive for international investors with yields of around 2% - 4%.”

The Global Property Guide disagrees - our research finds that in Vienna’s prime district (i.e., districts 1-9) gross rental yields to be higher, at 4.50% to 6.00%. Nevertheless, we agree that these are moderate yields.

Austria saw a dramatic rise in dwellings prices during the period 1987-1994. House prices in Vienna rose by almost 150%, following positive developments in Eastern Europe, increased immigration, and the expansion of owner occupancy. In some suburbs prices even tripled.

However, the price rises ended when the immigration inflow ended, optimism waned, and when extra housing supply came into the market. By 2001, property prices in Vienna were 14% lower their 1994 level.

Recently, Austria has been enjoying stronger economic growth, with 3.3% GDP growth in 2007 and 2006, after 2% growth in 2005, and 2.4% growth in 2004. Despite net immigration (27,477 in 2006, according to Statistics Austria), the unemployment rate has fallen somewhat from 7.3% in 2005, to 5.7% today (March 2008). One measure of increased optimism is stock market performance – since early 2003 the stock market has risen fivefold to its 2007 peak (though it has fallen back somewhat lately).

Residential mortgage rates have been rising along with the rest of the Eurozone, but as in Germany most mortgages are fized-rate, so the Austrian housing market tends to ignore interest rate shifts.

Rental market

The oversupply of rental units in the 1990s led to a fall in rents paid to private landlords. The stopped in 2000 and rents even rose briefly until 2001, but fell once more in 2002. Rents are now rising again, especially in good locations and top-tier property.

Vienna has one of the highest percentages of renter households in the world, at 82%, while the figure for Austria as a whole is around 40%. Around half of the rental stock in Vienna and Austria is privately owned.

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 much higher free market rents for recent entrants into the private rental sector.