EXPLAINED: Why people have stopped buying property in Austria
A perfect storm has been brewing in the Austrian property market - and it's making people think twice about buying a house. So why is demand for property collapsing and what effect is this having on prices?
What's going on?
Until the middle of 2022, it seemed like the Austrian property market was immune to the effects of global crises. The boom seen in previous years continued last year, with demand remaining high and supply remaining low.
But since the last quarter of the year there has been a drastic turnaround. Real estate agents are reporting a massive drop-off in interest, with far fewer property sales making it onto their books.
Most recently, Gerald Gollenz, chairman of the real estate trustees in the Austrian Federal Economic Chamber (WKÖ), referred to a decline in real estate purchases throughout Austria. According to the land register, these fell by about 20,000 to about 140,000 in 2022.
According to US investment firm CBRE, €450 million worth of real estate deals were closed in Austria in the first quarter of 2023 - more than 50 percent less than in the same period last year. So far, demand has dropped by 11.2 percent, while supply has increased by 7.6 percent.
"Sellers are not yet willing to lower prices in many cases - but that is exactly what buyers are waiting for," CBRE said in its May report. "As a result, expectations are not being met and transactions are down."
Why is demand dropping so much?
According to real estate experts, tough new rules for obtaining credit are a key reason for the collapse in buyers.
Since August 2022, would-be buyers in Austria have been required to stump up at least 20 percent of a property's purchase price as a deposit - meaning a couple purchasing a €400,000 house would need to raise at least €80,000 between them.
In addition, mortgage repayments cannot exceed 40 percent of a household's net salary, making it much harder for people on lower or middle incomes to be accepted for credit.
For example, someone buying a €360,000 flat in Austria would need a net household income of at least €3,250 per month to qualify for a mortgage.
Meanwhile, someone borrowing €400,000 with a €2,000 per month mortgage over 25 years would require a household salary of at least €5,000 after tax - but preferably more.
What's more, the maximum loan that someone can receive for a property purchase can no longer exceed 90 percent of the property value, and mortgage terms are now capped at 35 years.
This has had a clear impact on the number of loans being approved in Austria.
In the first half of 2023, Hypo Niederösterreich granted 25 to 30 percent fewer mortgages than in the same period in 2022. The Lower Austrian Raiffeisen banks, meanwhile, recorded a decline of 57 percent.
READ ALSO: EXPLAINED: How Austria's new property buying rules could impact you
Why did the government tighten the rules?
The new regulations were introduced back in August 2022 amid concerns that the lending criteria for houses in Austria were too lax.
Previously, the Austrian National Bank (OeNB) and the European Council for Systemic Risk had issued stark warnings that it was too easy to obtain credit for housing. This had been one of the driving forces behind the nation's over-heated housing market, which saw property demand growing faster than anywhere else in the eurozone.
Though demand has indeed dropped, real estate experts have criticised the fact that getting on the housing ladder has now become a distant dream for many people.
A street in central Salzburg. Photo: zhang xiaoyu on Unsplash
In an interview with Der Standard, Willibald Cernko, CEO of Erste Group, called for exceptions for young families who are particularly impacted by the new lending criteria.
"There may be good reasons for the new regulations, but in my view, they pay too little attention to young people and those on low incomes," he said.
"Where are young families supposed to get 20 percent of their own capital, even if both work, unless mum and dad or grandma and grandpa step in?"
READ ALSO: Where to find property in Austria for under €100k
Are there other factors at play?
Yes - unfortunately quite a few. In the wake of Russia's invasion of Ukraine and the ensuing energy crisis, interest rates averaged 8.55 percent in Austria last year.
This has not only made building materials much more expensive for developers, but has also put a squeeze on household incomes that has made it much more difficult for people to afford their loan repayments.
This isn't helped by the fact that the European Central Bank has been hiking interest rates at a rapid pace over the past twelve months. Since July 2022, rates have soared from 0.5 percent to four percent, making mortgage repayments much more expensive for buyers.
Against this economic backdrop, real estate expert Gollenz has urged the government to relax the lending criteria for would-be homeowners.
"If you took out a loan for €300,000 with a 25-year term and variable interest rates at the beginning of 2022, you would pay €1,030 a month. Now it's €1,625," he explained.
How are house prices being affected?
As you might imagine, the difficult conditions in the Austrian housing market have led to a steep drop in prices this year.
On average, asking prices have sunk by 6.8 percent, marking a dramatic turnaround after years of consistent price hikes. According to housing lender Infina, in 2023 "the price boom for single-family houses outside Vienna came to an abrupt end".
Even in the capital, asking prices for family homes dropped off by 1.7 percent year-on-year in the first quarter of 2023, compared to a plus of 16.3 percent in the fourth quarter of 2022.
A row of houses in Hallstadt, Austria. Photo: Daniel Frank on Unsplash
New-builds in Vienna initially seemed to have bucked the trend somewhat, with asking prices going up by 5.2 percent in the first quarter of the year. This could have a lot to do with the high demand for energy-efficient homes: in contrast to new-builds, average prices for existing flats in the capital - which tend to be far less energy efficient - went down by 1.3 percent.
In May, Bloomberg reported that Vienna's property market had the weakest growth of any major European capital. In the months leading up to the survey, prices per square metre had nosedived by an average of 12.2 percent.
FOR MEMBERS: Property buying rules for international residents in Vienna
Is this likely to continue?
In the current economic environment, it does seem like the current period of low demand and sinking prices could continue - at least in the short term.
According to the RE/MAX Real Estate Future Index, which collates the opinions of around 600 real estate experts throughout Austria, flats in central locations will lose 5.4 percent of their value in 2023.
Apartments in rural areas are expected to be hit the hardest with a 7.2 percent drop in prices, while single-family homes in residential areas are expected to lose 6.2 percent in value.
"The next months will remain challenging," Martina Hirsch, head of real estate company S Real, told Finanzmarktwelt. "We expect demand to remain weak and the market to be cautious and slow to adjust."
Comments
See Also
What's going on?
Until the middle of 2022, it seemed like the Austrian property market was immune to the effects of global crises. The boom seen in previous years continued last year, with demand remaining high and supply remaining low.
But since the last quarter of the year there has been a drastic turnaround. Real estate agents are reporting a massive drop-off in interest, with far fewer property sales making it onto their books.
Most recently, Gerald Gollenz, chairman of the real estate trustees in the Austrian Federal Economic Chamber (WKÖ), referred to a decline in real estate purchases throughout Austria. According to the land register, these fell by about 20,000 to about 140,000 in 2022.
According to US investment firm CBRE, €450 million worth of real estate deals were closed in Austria in the first quarter of 2023 - more than 50 percent less than in the same period last year. So far, demand has dropped by 11.2 percent, while supply has increased by 7.6 percent.
"Sellers are not yet willing to lower prices in many cases - but that is exactly what buyers are waiting for," CBRE said in its May report. "As a result, expectations are not being met and transactions are down."
Why is demand dropping so much?
According to real estate experts, tough new rules for obtaining credit are a key reason for the collapse in buyers.
Since August 2022, would-be buyers in Austria have been required to stump up at least 20 percent of a property's purchase price as a deposit - meaning a couple purchasing a €400,000 house would need to raise at least €80,000 between them.
In addition, mortgage repayments cannot exceed 40 percent of a household's net salary, making it much harder for people on lower or middle incomes to be accepted for credit.
For example, someone buying a €360,000 flat in Austria would need a net household income of at least €3,250 per month to qualify for a mortgage.
Meanwhile, someone borrowing €400,000 with a €2,000 per month mortgage over 25 years would require a household salary of at least €5,000 after tax - but preferably more.
What's more, the maximum loan that someone can receive for a property purchase can no longer exceed 90 percent of the property value, and mortgage terms are now capped at 35 years.
This has had a clear impact on the number of loans being approved in Austria.
In the first half of 2023, Hypo Niederösterreich granted 25 to 30 percent fewer mortgages than in the same period in 2022. The Lower Austrian Raiffeisen banks, meanwhile, recorded a decline of 57 percent.
READ ALSO: EXPLAINED: How Austria's new property buying rules could impact you
Why did the government tighten the rules?
The new regulations were introduced back in August 2022 amid concerns that the lending criteria for houses in Austria were too lax.
Previously, the Austrian National Bank (OeNB) and the European Council for Systemic Risk had issued stark warnings that it was too easy to obtain credit for housing. This had been one of the driving forces behind the nation's over-heated housing market, which saw property demand growing faster than anywhere else in the eurozone.
Though demand has indeed dropped, real estate experts have criticised the fact that getting on the housing ladder has now become a distant dream for many people.
In an interview with Der Standard, Willibald Cernko, CEO of Erste Group, called for exceptions for young families who are particularly impacted by the new lending criteria.
"There may be good reasons for the new regulations, but in my view, they pay too little attention to young people and those on low incomes," he said.
"Where are young families supposed to get 20 percent of their own capital, even if both work, unless mum and dad or grandma and grandpa step in?"
READ ALSO: Where to find property in Austria for under €100k
Are there other factors at play?
Yes - unfortunately quite a few. In the wake of Russia's invasion of Ukraine and the ensuing energy crisis, interest rates averaged 8.55 percent in Austria last year.
This has not only made building materials much more expensive for developers, but has also put a squeeze on household incomes that has made it much more difficult for people to afford their loan repayments.
This isn't helped by the fact that the European Central Bank has been hiking interest rates at a rapid pace over the past twelve months. Since July 2022, rates have soared from 0.5 percent to four percent, making mortgage repayments much more expensive for buyers.
Against this economic backdrop, real estate expert Gollenz has urged the government to relax the lending criteria for would-be homeowners.
"If you took out a loan for €300,000 with a 25-year term and variable interest rates at the beginning of 2022, you would pay €1,030 a month. Now it's €1,625," he explained.
How are house prices being affected?
As you might imagine, the difficult conditions in the Austrian housing market have led to a steep drop in prices this year.
On average, asking prices have sunk by 6.8 percent, marking a dramatic turnaround after years of consistent price hikes. According to housing lender Infina, in 2023 "the price boom for single-family houses outside Vienna came to an abrupt end".
Even in the capital, asking prices for family homes dropped off by 1.7 percent year-on-year in the first quarter of 2023, compared to a plus of 16.3 percent in the fourth quarter of 2022.
New-builds in Vienna initially seemed to have bucked the trend somewhat, with asking prices going up by 5.2 percent in the first quarter of the year. This could have a lot to do with the high demand for energy-efficient homes: in contrast to new-builds, average prices for existing flats in the capital - which tend to be far less energy efficient - went down by 1.3 percent.
In May, Bloomberg reported that Vienna's property market had the weakest growth of any major European capital. In the months leading up to the survey, prices per square metre had nosedived by an average of 12.2 percent.
FOR MEMBERS: Property buying rules for international residents in Vienna
Is this likely to continue?
In the current economic environment, it does seem like the current period of low demand and sinking prices could continue - at least in the short term.
According to the RE/MAX Real Estate Future Index, which collates the opinions of around 600 real estate experts throughout Austria, flats in central locations will lose 5.4 percent of their value in 2023.
Apartments in rural areas are expected to be hit the hardest with a 7.2 percent drop in prices, while single-family homes in residential areas are expected to lose 6.2 percent in value.
"The next months will remain challenging," Martina Hirsch, head of real estate company S Real, told Finanzmarktwelt. "We expect demand to remain weak and the market to be cautious and slow to adjust."
Join the conversation in our comments section below. Share your own views and experience and if you have a question or suggestion for our journalists then email us at [email protected].
Please keep comments civil, constructive and on topic – and make sure to read our terms of use before getting involved.
Please log in here to leave a comment.