Austria

Buying investment property in Austria: Pros & Cons

Austria’s housing demand continues to rise rapidly

Despite the downturn in the economy, Austrian house prices tend to rise rapidly. In the year to Q3 2019, the residential property price index in Austria rose by 5.22 percent (3.77 percent in real terms). In the last year, national property prices rose by 0.8% (0.83 percent in real terms) in Q3 2019.

  • Home prices in Vienna, Austria’s capital, increased by 7.62 percent in the year to Q3 2019 (6.14 percent in real terms). Vienna’s residential property price index rose by 0.87 percent (0.9 percent in real terms) from the previous quarter.
  • In the rest of Austria, the residential property price index rose by 1.82 percent (0.42 percent in real terms) from the previous year in Q3 2019. In Q3 2019, house prices rose marginally from the previous quarter by 0.72 percent (0.75 percent in real terms).

It is in line with Statistics Austria’s estimates, which found that the average house price index increased significantly by 6.18 percent during the year to Q3 2019 (4.72 percent in real terms). Quarter-on-quarter, house prices rose by 1.12 percent in the last quarter (1.15 percent in real terms).

By the kind of property:

  • For new dwellings, the average price rose dramatically by 8.53 percent (7.04 percent in real terms) during the year to Q3 2019 and decreased by 2.22 percent (2.25 percent in real terms) from the previous Q, according to Statistics Austria.
  • For current dwellings, the average price change was 5.32 percent (3.87 percent in real terms) from the previous quarter in Q3 2019 and 0.69 percent (0.73 percent in real terms) from the previous year.
  • For existing homes, the average price increased by a moderate 3.94 percent (2.51 percent in real terms) from the previous quarter in Q3 2019 and by 2.9 percent (2.93 percent in real terms) from the previous Q.
  • For existing apartments, the average price was up by 6.43 percent (4.97 percent in real terms) y-o-o in Q3 2019, but down by 1.01 percent (-0.98 percent in real terms) from the previous quarter.

Supply is falling amid high demand. In the first half of 2019, the overall number of buildings licensed for construction in Austria dropped almost 2% y-o-y to 35,623 units. Total residential loans rose by 5.4% from the previous year in October 2019 to EUR 117.59 billion (USD 132.09 billion) on the basis of estimates from the European Central Bank ( ECB).

House price and annual change graph in Austria

And the economy is slowing down. Austria’s gdp was expected to have expanded by 1.6 percent in 2019, down from the previous year’s 2.3 percent expansion, as global economic instability dampened domestic development, according to the OesterreichischeNationalbank. Austria’s economy is primarily driven by exports, largely to its biggest trade partner, Germany. The economy is projected to develop by a mere 1.2 percent in 2020 and another 1.4 percent in 2021, according to the Austrian Institute of Economic Research (WIFO).

There is no ban on foreigners purchasing property in Austria.

Rental Yields

Prices in Vienna have risen dramatically and yields are moderate.

Home prices in Vienna have been rising for a long time. Result: gross rental yields – a return on investment in a property before all expenses – are no longer good. However, it all depends on where you buy.

The basic rule is that yields are higher in less expensive districts

So yields are lower in district 1 (Innere Stadt). 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 11,000 to EUR 13,000 per sq. m., whereas in the other areas apartments cost around only EUR 3,500 to EUR 7,800 per sq. m. Yields in Innere Stadt vary from 1.7-2.3 percent At this kind of yield, no-one is purchasing an apartment to rent it out. These are the residences of the rich.

But suitable yields can be had in districts such as Margereten, Mariahilfen, Favoriten, Hernals, or Leopoldstadt, where apartment costs range a lot, from EUR 3,500 to EUR 5,400 per sq. m .. In these districts, yields range from nearly 5 percent for very small apartments, to 3-4.4 percent for large apartments.

And one will pick one’s district and scale carefully. Because a large apartment is less difficult to handle than a few smaller ones, a large apartment in Favoriten with a yield of 4.3 percent has attractions, for example.

Outside Vienna, Salzburg apartments tend to cost between EUR 5.300 and EUR 6.300 per sq. m. Salzburg apartment rents are similar to the Viennese level, at about EUR 12-17 per square. m. per month. Salzburg’s average rental yields ranged from 2.4% to 3.8%.

Apartments are most affordable in Graz, where apartments cost an average of EUR 3.300 to EUR 4.400 per meter. m. In Graz, rents vary from EUR 10.00 to EUR 13.50 per meter. m. It’s a month. Average rental yields in Graz are marginally higher than in Salzburg – from 2.5% to 4.9%. The smallest units have the highest rental returns.

Purchasing Guide

Purchasing costs are high in Austria

Overall round trip purchase costs are high at between 9.40 percent and 13 percent of the value of the property or selling price. Keep in mind that Austrian lawyers bill for small apartments on an hourly basis at the rates set by the association of lawyers, meaning that the cost of a lawyer may be proportionately higher for small apartments. It takes about 32 days to complete the three procedures required to register an immovable asset.

Landlord and Tenant

Austria has a pro-tenant rental market law

Austrian law is tenant-friendly, with rent control just below the free market standard.

Austria houses Rent Appeals: Renters can complain to the rental court even after they have left the apartment and deem the rent as overpaid. However, for new leases, the gap between what the rental court will measure and free market rates is very little.

Tenancy Laws: The two roots of tenancy law are the ‘ABGB’ (General Civil Code) and the ‘MRG’ (MietrechtsG, TenStatute) of 1982, as revised from time to time. It is also hard to learn how the two rules apply simultaneously (flats are subject to a much more conservative MRG).

The regular changes and its complicated legislation make the MRG and its associated legislation something of a ‘dark’ specialty, which is typically supervised only by lawyers trained in tenancy law, according the EIU Tenancy Law Project Austria report.

ECONOMIC GROWTH

Economic slowdown

According to the OesterreichischeNationalbank, Austria’s economic growth accelerated to 1.6 percent in 2019, lower than the previous year’s 2.3 percent rise, as global economic instability dampened domestic development. Austria ‘s economy is powered mainly by exports, primarily to its largest trade partner, Germany.

The Austrian economy is forecast to develop by a mere 1.2 percent in 2020 and another 1.4 percent in 2021, according to the Austrian Institute of Economic Research (WIFO).

Since 2011, the economy has stagnated in recent years.

GDP Growth and Inflation in Austria

In 2018, Austria suddenly had its first budget surplus since 1974, as sharp tax revenue growth outpaced spending. The nation was estimated to have generated a surplus of 0.4 % of GDP in 2019. Gross government debt was reported at 69.9 per cent of GDP in 2019, and is expected to slip further to 67.2 percent of GDP in 2020.

Unemployment was 4.6 percent in October 2019. Austria’s unemployment rate stands well below the euro region level of 7.5 percent in October 2019.

Inflation was 1.1 percent in November 2019, down from 2.2 percent last year, according to Statistics Austria. The European Commission expects Austria to have inflation at 1.5 percent in 2019 and 1.6 percent in 2020.

Vienna

What do you think about real estate investments in Vienna?