The prices in the congested urban areas are noticeably increasing. The market for freehold flats is firmly under Austrian control. Even though international investors do appear now and again, the Austrian rental laws are a deterrent for many such investors.
The increasing supply of properties in 2015, the Central location in high demand 2016 was a good sales year for the residential real estate market, reflecting upon the year, the real estate branch can be satisfied. The market for freehold flats is the largest segment of the real estate market (40%) and is concentrated generally on urban areas. More than half of the apartment purchases in Austria take place in the five most densely populated cities (Vienna, Graz, Linz, Salzburg and Innsbruck, including surrounding areas). Around 30% take place in Vienna alone. This will not change in the near future: The appeal of the big cities remains unwaveringly high. A high influx of people is moving to the most populated urban areas and their suburbs. The real estate branch expects a further increase in demand of apartments and as long as interest rates remain low, this will not change. Whereby owner-occupiers still make up the majority of the demand group. Correspondingly high is the demand for property that can be afforded by a broad sector of the population. Up to the medium price range the demand is very high and it surpasses the supply in many areas. This is the predominantly accepted opinion of local real estate experts.
In Innsbruck, Salzburg and Vienna the mid-range prices are the highest by far – even though the actual sale prices are usually lower than the asking prices. The second biggest real estate region is Graz, freehold flats are cheaper here. Compared to Linz, more than double as many apartment transactions take place in Graz, however, the median price range is lower than in Linz. The price range in Vienna was between 2,400 and 4,000 Euros per square meter for the median 50 percent of all apartment sales (used apartments). For new (and equivalent to new) apartments the price range was between 3,300 and 4,800 Euros per m2 (25% paid less, 25% paid more than the prices in the median price range).
All areas in Vienna are experiencing a positive development. Even areas that did not used to be top locations saw an increase in value (examples: 5th district and parts of the 15th, 16th and 12th districts). Acquisitions on the secondary market have become difficult, because currently nothing is being sold unless it is absolutely necessary.
“In 2017 the development of prices and rents should stabilise”, explains EHL expert Sandra Bauernfeind. “This year the number of completions is expected to be higher than in 2016. In the next few years a number of big projects are planned, these will lead to a prolonged upwards trend. This will also reduce the pressure on the market and we do not expect further price increases to be much higher than the inflation rate.” In the rental apartment sector the increases will be about 1.3% for mid-range apartments and 1% for the higher price ranges. For freehold flats in good and very good locations, Bauernfeind expects an increase by about 3.25 to 3.75% – and in average locations an increase of up to 3%.
There is an especially noticeable increase in the supply of high-quality apartments coming on the market in 2017 that will be ready for occupancy in the next two to three years. Examples include “Triiiple”, “Danube Flats” and “Forum Donaustadt”. The elevated prices in the last couple of years are leading to increased marketing time for sales. This is particularly true in the medium and higher price segments. Apartments up to 300,000 Euros can be marketed very quickly. There are similarities in the rental sector: If the gross rent is higher than 1,500 Euros, the owner has to expect longer vacancy periods (four to six months on average).
Apartments that are well designed, well situated in terms of traffic and with modern furnishing – ideally with open spaces and prices up to 400,000 or 500,000 Euros – are sought-after. Anything above that, and the marketing starts getting more difficult. Because of difficulties with affordability, apartments are getting smaller. “The most commonly sold apartments are between 65 and 80 m2. More compact layouts require sufficient storage space. This requires careful planning. Not only reasonable floor plans are needed, but also dry cellars and safe bicycle storerooms. At the very least small open spaces like balconies and terraces have become indispensable in new apartments.
The great popularity of the apartment market (compared to other market segments) has led to a trend of converting other spaces into apartments. Remarkably, locations for more and more residential high-rises are being planned – as opposed to office sky scrapers. Furthermore, high-rises that were originally planned to be used as office space are being converted into apartment complexes. “A new market segment is emerging for Vienna in the highest price range. This is an alternative to the typical Austrian new housing developments,” says Bauernfeind.
The climbing prices combined with the limitations of on rental income by the Austrian Tenancy Law (MRG) have led to a trend of selling all the individual apartments out of apartment buildings. In the past, this was especially the case in the districts within the Gürtel in Vienna; now Investors are also doing this in good locations such as parts of Meidling, Rudolfsheim-Fünfhaus and Ottakring. This is especially true for properties close to underground stations. Transactions concerning parts of apartment buildings have become very common. “This particular system of real estate sales has become much more popular in the last five years,” explains Markus Arnold of Arnold Real Estate. Since a share deal is not listed in the land registry, the Viennese market for apartment buildings is estimated to be greater than some might believe. “There are various reasons for the rise of share deals; tax benefits are just one of them.” Arnold expects a further increase of share deals in the coming years.
The market for freehold flats is dominated by Austrians. Even though international players do appear every now and then, those investors are usually “deterred by the Austrian rental regulations,” says Roland Pichler, DWK (Die Wohnkompanie). “Most Austrians don’t understand it – how is a manager of a foreign fund supposed to understand it?” No wonder that BUWOG and others would rather build in Germany than in Austria. This is not going to change in the next couple of years. Very few real estate experts believe that the incumbent government will change the rental laws during their current term in office. Pichler believes that the many participation laws are a problem: “This prolongs construction projects substantially.” Bauernfeind adds: “Construction projects that have been completed are too small for international investors. Really massive city developments that are interesting for those investors are hardly taking place.”
Trends
Purchase and rental prices
- The expansion activity of the international retailers is focusing on 25 European cities, including Vienna, which ranks in the Top 5 as an expansion target and 13th worldwide.
- Top locations: Districts 3 to 9, as well as 13, 18 and 19: High demand, increase in prices of about 3.2 % in the context of inflation Rental prices up by about 1 %
- Good locations: Districts 2, 12, 14, 16, 17, 22 and 23: High demand, significant increase in prices of about 3.7 %, rental prices up by about 1.2 %
- Average locations: Districts 10,15, 20 and 21: Very high demand, particularly in micro assets, significant increase in prices of 3 %, rental prices up by about 1.3 %
Price trends 2017
- Expected increase in apartment prices in good and top locations by 3.25 – 3.75 %
- Expected increase in apartment prices in average locations by 2.75 - 3 %
- There is already a significant increase in prices on property in District 10 (extension of metro lines U1 and U2) and along the U5 (up to 100 % in the last 2 to 3 years)