Austrian Central bank downplays fears of property bubble

Following on the heels of several statements from German's Bundesbank downplaying any real estate bubble fears here in Germany, Austria's central bank has also taken pains to allay concerns that there is any emerging real estate bubble in Vienna and throughout the rest of the country. It said it was monitoring the situation closely and was introducing a new fundamental price indicator.

Residential real estate in Austria has increased 39% between 2007 and 2013, the highest increase seen in the eurozone. Vienna saw particular price hikes with the top-end of the market attracting foreign buyers looking for second homes. Across Austria second-hand apartments saw the largest price increases, but single family homes and new apartment also saw substantial price rises. Low interest rates holding mortgages down, as well as demographic factors, and the lack of alternatives offering equivalent yields, are given as the main reasons for the price surge.

In a statement last week, the Austrian central bank commented, "The risk to financial stability from increasing real estate prices is gauged to be low." At the same time the bank said that Vienna real estate is overvalued by 21%, while residential real estate for the country as a whole is undervalued by 8%.

According to Georg Fichtinger, CBRE's head of capital markets in Austria, the bulk of buyers have been investors who are looking for “insurance for the future” and are “looking to park a certain amount of money,” While Vienna’s top-end apartment market has been dominated by buyers from outside of the country looking to invest, the market for small apartments–seen as investments for retirement or to be rented out–has been dominated almost 100% by local investors, Fichtinger said.