What's been happening in the Austrian property market over the past year, as its northern and larger neighbour Germany adjusts to new realities driven by strong inflation and rising interest rates?
A similar development in the Austrian residential property market to Germany is underway, with the impact of macro-economic forces likewise being felt after nearly two decades of steadily rising prices for houses and apartments. While property prices have doubled over the past ten years, affordability has dropped significantly, as incomes have risen by only a third over the same period, according to the Österreichische Nationalbank.
The Covid years of 2020 and 2021 saw a surge in sales of properties that had been slow to shift before, as the impact of working from home kicked in. Although prices rose by an average of 10% in the first half of 2022 over the same period in the previous year, the rising interest rates since then and tougher lending criteria have seen the market cooling rapidly since then. The war in Ukraine has also put a damper on construction of new housing, likely to fall by about 27% this year, due to rising construction costs, less new building permits issued through the coronavirus years, and the retreat of foreign investors.
Austria's Institute for Economic Research is also expecting stagnation in construction activity through 2023. And Austria's broker networks are now reporting many new properties coming on to the market than before, offering buyers a wider choice, as owners facing higher refinancing costs decide to sell up. At the same time, demand is falling given the higher costs of borrowing and general uncertainty about inflation, turning a long-term sellers' market into a buyers' market.
The Austrian market has generally been buoyed by a scarcity of buildable land, given the country's mountainous terrain. The country's bigger cities have prospered, seeing strong influxes of population. Vienna currently houses 1.9m inhabitants, and is expected to be touching 2.2m people by 2048, higher than its historic population peak of 2.1m inhabitants as far back as 1910. So a price slump is unlikely, a view shared by several of Austria's larger banks, although most expect nominal prices to stagnate or fall slightly over the next two years.
Given Austria's topography, residential prices vary widely from region to region. Property portal Immoscout shows price differences of up to €12,360 per sqm for houses and €9,300 per sqm for apartments. The most expensive prices are, not surprisingly, in Vienna's first district, with average prices in July 2022 of €21,085 per sqm.
In the leading ten regions with the highest asking prices, the prices per sqm are above €6,000. This is especially true for the west of Austria and for popular lake and ski resorts. Prices in the upmarket Tyrolean ski resort of Kitzbühel are now €10,753 per sqm for apartments and €13,654 per sqm for houses, with the border town of Kufstein showing similar price levels. It will cost more than €7,000 per sqm in the popular towns of Salzburg, Innsbruck, Landeck and Zell am See. Those looking to pay much less should look to Lower Austria and Stryria, where price levels have traditionally been much lower.
