Austria’s property market slowing sharply
Last Updated: March 15, 2015
This overall slowdown in the housing market is reflected in almost all parts of the country.
- In Vienna, the capital, residential property price index rose by just 2.2% (0.5% in real terms) during the year to Q3 2014, the lowest growth in almost seven years. During the latest quarter, house prices in Vienna actually dropped 2.5% (-2.3% in real terms) in Q3 2014, in sharp contrast with the q-o-q growth rates of 1.3% in Q2 2014, 1.1% in Q1 2014, and 2.3% in Q4 2013.
- In the rest of Austria, residential property prices rose by only 2.6% (0.9% in real terms) from a year earlier, and actually fell by 0.5% (-0.4% in real terms) from the previous quarter.
This was supported by figures released by Statistics Austria, which showed that the overall house price index increased by just 0.7% y-o-y in Q3 2014, the lowest annual increase since it started publishing the figures in 2010.
By property type:
- The average price of condominium units in Austria increased by a meagre 0.8% during the year to Q3 2014, but actually dropped 0.9% when adjusted for inflation, according to the OeNB. Quarter-on-quarter, the prices of condo units remained unchanged in Q3 2014.
- The prices of single-family houses rose by 3.7% (2% in real terms) in Q3 2014 from a year earlier, but unchanged from the previous quarter.
Residential land prices in Vienna dropped 4.6% in Q3 2014 from a year earlier. In contrast, land prices in the rest of Austria continued to increase by 5.7% over the same period.
The total number of real estate transactions in Austria rose by 10.3% in the first half of 2014 from a year earlier while the value of transactions also went up by 4.3% over the same period, based on figures published by RE/MAX and compiled from the land register by IMMOunited. This was a sharp turnaround from a 12.5% decline in the number of transactions and an 8.3% drop in the volume of transactions in 2013.
In the high-end residential market, Austrians represent about 60% of property buyers in the country while the remaining 40% are foreigners, mainly from Eastern European countries like Russia and Ukraine, said Peter Marschall of Marschall Real Estate in Vienna.
With the uncertain economic condition in Russia and the conflict in Ukraine, foreign demand of Austrian properties is expected to slow again this year. “I think this year it will not be so easy, because we are strongly influenced by the economy in Eastern Europe, and a lot of buyers come from there,” Marschall said.
For better yields in Austria look outside Vienna, to Salzburg or Graz
For a long time home prices have been rising in Vienna. Result: gross rental yields - the return on investment on a property before all expenses - is now very low, at around 3.5% for a 120 square metre (sq. m.) apartment in a non-InnereStadt area, or 2.1% elsewhere.
You would not buy an apartment in Vienna now for the rental return.
That has implications for the wisdom of investing in Vienna. Generally, when yields reach a nadir, it is a sign that the market is about to turn - although some international cities like Monaco appear comfortably to weather minuscule yields for long periods of time.
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.
Apartments in Innere Stadt change hands at around EUR 10,000 to EUR 17,00 per sq. m., whereas in the other areas apartments cost around only EUR 4,000 to EUR 6,000 per sq. m.
Innere Stadt apartments fetch higher rents, ranging from EUR 18 to EUR 20 per sq. m. per month. These have not increased in the past two years. In the other upscale districts of Vienna, rents range from EUR 14 to EUR 15 per sq. m. per month.
Salzburg apartments cost around EUR 3,300 to EUR 4,600 per sq. m. Rents on Salzburg apartments are close to Viennese levels, at around from EUR 14 per sq. m. per month. Salzburg gross rental yields range from 3.5% to 5.3%.
Apartments are most affordable in Graz, where apartments cost, on average, EUR 2,600 to EUR 3,100 per sq. m. In Graz, rents range from EUR 9.50 to EUR 12.50 per sq. m. per month.
Gross rental yields are the highest in Graz - slightly higher than in the smaller Salzburg - ranging from 3.7% to 5.5%. The smallest apartments return the highest rental yields.
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.
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.
Meagre economic growth in 2015Austria’s economy was estimated to have stagnated in 2014, with real GDP growth rate of just 0.2%, after expanding by 0.3% in 2013 and 0.9% in 2012, according to the European Union (EU). The EU recently revised down its growth projections for Austria to just 0.8% this year, down from a previous forecast of 1.2%.
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 3.1%. After contracting by 3.8% in 2009, the economy emerged from recession with growth rates of 2.31% in 2010 and 2.7% in 2011.
Austria’s budget deficit was projected to be at around 2.4% of GDP last year, slightly up from 2.3% in 2013. The budget deficit is projected to decline to 1.8% of GDP in 2015 and to 1.4% in 2016, according to the OeNB.
The country’s overall unemployment rate stood at 5.1% last year, but is expected to increase to 5.3% this year.
In January 2015, the country’s annual inflation rate stood at 0.5%, down from 0.8% in the previous month, according to Eurostat. However, this was higher than the EU’s average inflation of -0.6% in January 2015. Austria’s inflation rate averaged 2.3% from 2010 to 2014, according to the IMF.
Austria was annexed by Germany during the Second World War amongst popular enthusiasm. After World War 11, the Allies occupied Austria until 1955. The country then became a fully independent republic, under the condition that it would remain neutral. Austria joined the European Union (EU) in 1955 and the Euro Monetary System in 1999, and is a founder-member of the OECD. It signed the Schengen Agreement in 1995 and adopted the Euro in 1999.
Austria’s capital, Vienna, is home to key international organizations. These include the International Atomic Energy Agency (IAEA), the Organization for Security and Cooperation in Europe (OSCE), and the Organization of Petroleum Exporting Countries (OPEC).