House prices soar outside the Austrian capital, but Vienna slows
February 12, 2018
Austrian housing prices continue to rise, as economic growth accelerates further. During 2017, the residential property price index in Austria was up by 4.7% (2.45% in real terms) from a year earlier, after y-o-y rises of 4.57% in 2016, 7.59% in 2015, 2.42% in 2014, 4.11% in 2013, and 11.46% in 2012 based on figures from the Oesterreichische Nationalbank (OeNB). During the latest quarter, nationwide property prices increased 0.58% (-0.38% in real terms) in Q4 2017.
- 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.
Property transactions continue to rise
The value of property transactions rose by 14.5% in 2016 from a year earlier to EUR 26.9 billion (US$ 33.3 billion), according to Oesterreichische Nationalbank (OeNB). In 2017, property transactions were estimated to have risen further, amidst higher purchasing power and improving economic conditions.
“Several large deals in Vienna in the first half of 2017 have ensured that the volume of transactions has reached a new record high,” said local real estate firm BesteAussichten in its H1 2017 report. “This has created the conditions for strong investment figures on the real estate market for 2017 – we anticipate a volume of transactions of around EUR 3.3 billion by the end of the year.”
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 Peter Marschall of Marschall Real Estate in Vienna. 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.
The "super prime" capital Vienna, 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 about 8.75 million. The capital and the largest city of Vienna accounts for more than 20% of the population.
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 18th Mercer Quality of Life study published in 2017. The study examined social and economic conditions, health, education, housing and the environment.
“Vienna has ranked top in the last seven published rankings,” said Mercer. “It scores highly in a number of categories; it provides a safe and stable environment to live in, a high level of public utilities and transport facilities, and good recreational 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 luxury and secondary home market in Vienna. In December 2017, Innere Stadt apartments cost around EUR 12,265 (US$ 15,179) per sq. m., according to the Immopreise.at.
Luxury properties in the prime district could cost from EUR 6,000 (US$ 7,425) to EUR 16,000 (US$ 19,800) per sq. m., according to Knight Frank Austria´s Head Alex Koch de Gooreynd. Property prices could even reach up to EUR 30,000 (US$ 37,127) per sq. m. in exceptional cases. Just slightly lower prices are also seen in the surrounding areas such as the 2nd up to the 9th districts. Prices of condos or villas in the 19th, 18th, and 13th districts range from EUR 10,000 (US$ 12,376) to EUR 15,000 (US$ 18,563) per sq. m.
In Graz, houses cost, on average, EUR 3,074 (US$ 3,804) per sq. m. in December 2017, according to the Immopreise.at. On the other hand, Salzburg houses cost around EUR 4,000 (US$ 4,950) per sq. m. over the same period.
The long boom
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). On the other hand, property prices in the rest of Austria have risen 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.
Increasing housing supply
The number of new dwellings built in Austria was around 66,000 units yearly in the 1990s, but as a result of a boom-and-bust cycle, the number fell to about 40,000 units a year during 2001-2004. Around 56,400 dwellings were completed in 2016, up from 50,100 units in 2015, according to Statistics Austria.
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.
The total housing stock in Austria reached almost 4.65 million by the beginning of 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
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 of September 2017. 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% in September 2017. 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
The average residential rent in the country rose by 3.5% to EUR 507.60 (US$ 627.60) per month during the year to Q3 2017, according to the Oesterreichische Nationalbank (OeNB). The average rent of dwellings in Vienna rose by 48% from 2006 to 2016, slightly higher than the 42.6% 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 in September 2017, according to according to Global Property Guide research. These rents have not increased in the past two 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 in September 2017.
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.
All-time low interest rates
November 2017, the average interest rate for new housing loans fell to 1.75%, from last year´s 1.87% average housing loan rate, and from 2.01% rate in November 2015.
Average interest rates for new loans in November 2017 were:
- Interest rate fixation under 1 year: 1.59%, a decline from 1.8% a year earlier, and the lowest since data was first published in January 2003.
- IRF over 1 and up to 5 years: 1.62%, slightly up from last year´s 1.52%, but down from 1.8% two years ago.
- IRF over 5 years and up to 10 years: 1.96%, down from 2.1% the previous year and the lowest since data was first published 14 years ago.
- IRF over 10 years: 2.08%, down from 2.16% a year earlier and 2.61% two years ago.
For outstanding housing loans, interest rates were at their lowest levels since data was first published in January 2003:
- IRF of up to 1 year: 1.58%, down from 1.9% the previous year.
- IRF over 1 and up to 5 years: 1.72%, down from 2.06% a year ago.
- IRF over 5 years: 1.8%, down from 1.95% a year earlier.
The decline of mortgage rates is 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, but expansion continues
In terms of size, the Austrian mortgage market has expanded to 28.74% of GDP in 2017, up from 17.21% of GDP in 2003. Austria is relatively under-mortgaged: the EU´s average is 50% of GDP. As of December 2017, total housing loans stood at EUR 104.29 billion (US$ 129.07 billion), up by 3.1% from a year ago, according to the ECB.
The share of foreign-currency denominated mortgage loans is declining. From 17.8% in November 2016, its share to total mortgage loans fell to just 13.6% in November 2017. About 96.7% of these foreign-currency denominated loans were in Swiss franc (CHF).
Housing loans, as percent of disposable income, fell to 47.5% in Q2 2017, from 49% in 2015 and 49.2% in 2016.
Austria´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.
- House prices soar outside the Austrian capital, but Vienna slows - March 28, 2017
- Austrian housing market vibrant, despite weak economy - April 14, 2016