Economic attractiveness of Vienna for foreign investors in 2020

Decline in housing permits

Housing permits have started to fall since last year, according to Statistics Austria. In the first half of 2019, the total number of housing approved for construction fell by almost 2% compared to the same period in 2018.

The total housing stock in Austria is currently around 4.65 million people. Almost 52% are registered in multi-storey buildings, and less than 46% - in houses for 1-2 families.

As The Guardian noted in their article, currently about two-thirds of Vienna's citizens live in municipal or publicly subsidized housing. Where about 80% of the apartments built in Vienna are funded by the city's housing subsidy. The local government of Vienna plans to increase housing construction by 30%, which means that the city will build about 13,000 new houses annually, up from the current 10,000.

Rental yield

The rental market in Austria is segmented through ownership, regulation and market forces, driven by low rental rates for municipal, social tenants and long-term employees in the private sector, but higher market rental rates for recent participants in the private rental sector. It is worth noting that rental rates in the freehold real estate sector are largely controlled, where the maximum rent is clearly defined by the authorities.

According to the Global Property Guide, which only covers the freehold market, rental yields in the Innere Stadt area are low compared to other areas of Vienna, where yields range from 1.72% per 130 sq. m up to 2.33% per 50 sq.m. apartments. With such a profitability, apartments are residences for the rich and there is no point in buying them in order to rent them out.

According to statistics, Vienna has the highest percentage of tenants - 78%. For lease, it is more profitable for investors to purchase not one large, but several small apartments, up to 35-40 sq. m, where the yield is 5% per year.

In other districts of Vienna such as Margrethen, Mariahilfer, Favoriten, Hernals or Leopoldstadt, rental yields range from 5% - 3% for very small apartments to 4.4% for large ones.

In Salzburg, gross rental yields for apartments range from 2.4% to 3.8%. In Graz the figures are slightly better at 2.5% - 4.9%, where the smallest apartments generate the highest rental yields.‍

Housing rent growth

According to Austrian statistics, the average rents in the country rose by 4% to € 402.2 per month during 2019. If measured per sq. m, then the average rental price increased by 2.7%.

In the west of the country, the average rental price is three times higher than in the east. 9 of the 10 counties with the highest average rates are located in the western federal states: Tyrol, Salzburg and Vorarlberg. The exception is Vienna, which is in the TOP-10 most expensive regions of the country.

According to research by the Global Property Guide, apartments in Innere Stadt have one of the highest rents in Austria - from € 18 to € 22 per sq. m per month. These rental rates have not increased in the last 3 years. In other prestigious districts of Vienna, rents range from € 11 to € 19 per sq. m per month.

According to the 2019 city ranking, Innsbruck is the most expensive, where the home owner asks on average € 17.5 per sqm per month. An additional factor of expensive rent, besides the fact that it is difficult to find land for building due to the relief, is the influx of students and population growth.

The further east you go, the lower the average rental rates are. Vienna took 7th place in the ranking with an indicator of € 13.7 per sq. m per month. Even the active construction of subsidized residential properties does not affect the rental price in the capital. Although rental real estate in the Austrian capital is considered the most budgetary by European standards, and the average is growing slowly, the gap between the east and west of the country has persisted for more than one year. For 10 years the cost of rented housing in Austria has not changed much: in 2009 one-bedroom apartments by 40 sq.m was offered for about € 480 per month, that is € 12 per sq.m., and in the 2019 the average price remained at the same mark.

Renting a property is common among residents of Vienna and large Austrian cities. At the same time, population growth continues, so that property prices are rising. Experts still consider housing in Austria a good investment.

The rent for apartments in Salzburg is close to the level of Vienna, from about € 15.40 to € 17 per sq. m per month. In Graz, prices are more affordable - from € 10 to € 14 per sq. m per month.

It is also worth noting that in Vienna about 75% of houses are rented, which is the highest indicator in the world in terms of the number of household tenants. In Austria as a whole, households own 56.4% of primary homes, while 41.2% are rented, according to a recent microcensus report. The level of home ownership is well below the EU-27 average of over 70%.

According to Martin Schneider of OeNB, the high percentage of residential rental properties is due to the large share of subsidized low-rent apartments in the general rental market. Limited tax breaks for homeowners also contribute to a high tenant share.

According to Statistics Austria, there were about 1,654,100 rented dwellings in Q3 2019 in Austria, which is 1% more than in the same period last year.

Interest rates

According to the Oesterreichische Nationalbank (OeNB), the average interest rate of new home loans fell to 1.44%, from 1.82% last year.

Average interest rates on new loans in October 2019:

• Fixed interest rate (IRF) up to 1 year: 1.2%, down from 1.49% a year earlier and 1.71% two years ago.
• IRF over 1-5 years: 1.48% compared to 1.66% last year and 1.59% two years ago.
• IRF over 5 years and up to 10 years: 1.71%, compared to 2.06% in October 2018 and October 2017.
• IRF over 10 years: 1.62% versus 2.25% a year earlier and 2.15% two years ago.

For outstanding home loans, the average interest rate was 1.74%, down slightly from 1.81% in the previous year.

Statistics for October 2019:

• Maturity up to 1 year: 1.61% versus 1.74% a year earlier and 1.75% two years ago.
• Maturities over 1 year and up to 5 years: 1.7%, down slightly from 1.74% a year earlier and from 1.72% two years ago.
• Maturity over 5 years: 1.74% versus 1.82% a year earlier and 1.86% two years ago.

The persistently low mortgage rates are partly due to the decline in the key rate of the European Central Bank (ECB) to a record low of 0.00% in March 2016, where it has remained since then.

The Oesterreichische Nationalbank (OeNB) has significantly lowered its forecast for 2020 domestic economic growth. In 2019, it was 1.6%, while at the beginning of 2020 it was only 1.1%. The Central Bank of Austria predicts high growth in the next 2021 and 2022 - 1.5 and 1.6%, respectively.‍

Mortgage market

In terms of size, the Austrian mortgage market expanded to 29.5% of GDP in 2019, up from 17.1% of GDP in 2003. Austria is relatively underfunded, with the EU average of 50% of GDP. According to the European Central Bank (ECB), as of 2019, the total volume of home loans amounted to 117.59 billion euros, which is 5.4% more than in 2018.

In Q4 2019, new loans to households for housing purposes rose 4.62% from a year earlier, according to OeNB. The share of mortgage loans in foreign currency continues to decline. From 18.8% in 2016, its share in the total volume fell to 15.7% in 2017 and, to 12.3% in 2018. About 97% of these foreign currency loans were in Swiss francs (CHF).

Home loans, as a percentage of disposable income, accounted for 51.1% in the first quarter of 2019, up from 52% in 2018, 51.3% in 2017 and 50.2% in 2016, according to the central bank.

Economic downturn

The Oesterreichische National Bank estimates that economic growth in Austria slowed to 1.6% in 2019, below 2.3% growth in 2018 as global economic uncertainty weakened domestic activity. The Austrian economy is mainly driven by exports, where over 75% of Austrian exports go to Europe and 30% to Germany.

According to forecasts by the Austrian Institute for Economic Research (WIFO), the Austrian economy should grow by 1.2% in 2020 and by another 1.4% in 2021.

In 2018, Austria unexpectedly recorded the first positive surplus in budget revenues since 1974, as a sharp rise in tax revenue outstripped spending. According to the European Commission the country achieved a surplus equivalent to 0.4% of GDP in 2019, a slight improvement from a surplus of 0.2% in 2018. The country's gross public debt was estimated at 69.9% of GDP in 2019, up from 74% in 2018 and 78.2% in 2017, and is projected to decline further to 67.2% of GDP over the 2020 period.

According to Statistics Austria, the unemployment rate at the end of 2019 was 4.6%, down slightly from 4.9%, but nevertheless remains well below the Eurozone average of 7.5% by the country at the beginning of 2020.

According to statistics from Austria, the recorded inflation in November 2019 was 1.1%, down from last year's figures by 2.2%. In fact, it was the lowest level in 3 years. The European Commission expects inflation in Austria of 1.5% in 2019 to reach 1.6% in 2020.

Conclusion

1. The East Austrian region promotes its location internationally as a leading business and technology center, contributing to the region's high economic strength, quality of life and location in the heart of Europe.
2. Vienna is ranked as the best city in the world with the highest quality of life, topping the ranking for the 10th consecutive year.
3. In Vienna, for rental housing, it is much more profitable to purchase several small apartments than one large one.
4. The rent in the most prestigious areas of Vienna ranges from € 11 to € 19 per sq. m per month.