Austrian residential prices go into reverse, helped by Russian sanctions

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Austrian residential real estate, which had been rising at a steady 10% clip annually for the past several years, has experienced a trend shift and prices are now actually falling, according to a report from specialist researcher IMMOunited, which tracks all property transactions in the Alpine republic.

The reports says that Austria’s falling prices are due to an increase in supply, with 44,141 properties changing hands in the first two quarters of this year, an increase of 10% over last year. Austrian analysts are now expecting prices to fall 3% before next year, and continue falling beyond 2015.

Particularly hard hit is luxury real estate (€500,000 upwards), which has seen demand falling by 5.5% in the first half, with prices down by 4%. This has been partly affected by the sanctions imposed on Russia by the EU, according to Austrian newspaper Der Kurier. Vienna is the only city just about holding up, with prices up 1.3%, but mainly at the lower end of the market.

This is all in stark contrast to Germany, where prices are still rising – although there is evidence of the larger cities seeing a levelling-out of the price level, while new, smaller cities are coming to the fore. Prices of owner-occupied apartments in German cities saw price increases by up to 21% in the past year – 10% in the second quarter of 2014 – although the rises were less spectacular in the biggest markets, according to an index by advisor F&B from Hamburg, which evaluates prices for every city with more than 25,000 inhabitants.

The biggest price jump was not in the normally booming property markets of Berlin or Munich, but in the picturesque Bavarian town of Kempten im Allgäu. According to F&B, Munich prices rose 1.4% in Q2 making it still the most expensive city in Germany by far, at a full €1,000 more per square metre than the next most expensive city, Garmisch-Partenkirchen in the German Alps.

Despite the jitteriness of the Bundesbank, whose remit is, of course, to worry on behalf of the nation and who issue sporadic warnings about regional overheating, the latest study by market research group empirica takes a more sanguine view on the market. Germany shows no sign of housing or credit oversupply, and rents, home prices and income are growing apace so that no gen­eral bubble is emerging, it says in its latest report. Nonetheless, overheating is emerging in several market segments, it cautions.

Independent economics research house empirica’s latest house price ‘bubble index’ HAS risen, but still re­mains on a healthy level, it says. Several sub-indices have moved into the red, however. One is the house price-income ratio in six of Ger­many’s largest cities (Hamburg, Düsseldorf, Frankfurt, Stuttgart, Munich and Berlin), up from only three last year, and that for rent multipliers in eight cities (the above minus Berlin, plus Bremen, Essen and Cologne), up from six.

Adding a further cautionary note, empirica points to the higher visibility of dubious studies in the media and elsewhere, proposing where one still can buy cheap or how to refi­nance at good conditions. “Apparently we have reached the point where – to paraphrase the legendary investor André Kostolany – the taxi driver stops asking experts for investment tips and starts issuing recommenda­tions himself,” said the report. “The seed for a bubble has started to germinate.”