The Austria Property market has changed
The apartment building market, which was flourishing until recently, has almost come to a standstill. However, the fall in prices has not yet reached home buyers!
For 15 years, property developers could hardly go wrong: Build apartments and sell them to buyers in a gradually rising market. To owner-occupiers and, over time, increasingly to investors, as so-called investment apartments. The zero interest rate phase lured many people with money into the real estate market.
However, the trend reversed last year. The rapid rise in interest rates caught the sector rather unprepared and drove some market participants into turbulence that threatened their very existence. Land and projects had already been purchased at far too high a price, financing the projects suddenly became extremely expensive and buyers in the form of investors or owner-occupiers were suddenly no longer queuing up. This is now leading to many insolvencies. The apartment building market, which was flourishing until recently, has almost come to a standstill. However, the fall in prices has not yet reached home buyers!
Colindo Immobilien Gmbh, based in Vienna first district, was recently hit. Iit said in a press release a few days ago. Liabilities amount to around 22.8 million euros, which are said to be offset by assets of 11.8 million euros.
“The debtor company specializes in the purchase of apartment buildings or apartment building projects, which are then renovated and resold,”
The company stated that rising interest rates were the cause of the insolvency. These had led to significantly higher financing costs, “with a simultaneous decline in achievable sales proceeds”. Although Colindo GmbH was able to sell properties with a total value of 160 million euros before the current crisis, it was then left with the remaining real estate portfolio, which was presumably purchased at far too high a price. The company is now offering a quota of 20 percent.
A business collapsed
The Austria Property market has changed. Trading in apartment buildings has flourished in recent years, but now this business has come to a rather abrupt end. Grossmann + Kaswurm Immobilien is also feeling the effects of this and has therefore recently changed its strategy. “Up to now, we too have mainly traded in houses: explains Managing Director Peter Kaswurm. We bought apartment buildings, developed projects and sold them on with planning permission. Some houses were sold on four or five times during this time,”. Now everything is different!
His Self-critical postscript: “Of course, we were also part of this system – so we don’t expect any sympathy.”
Now everything has to be built in-house again. So instead of buying apartment buildings, merely planning projects such as loft conversions and then selling them on as projects, which according to Kaswurm was the case for around two thirds of the time, the traditional property development business is now back in demand.
The company is still buying apartment buildings, but the deals are taking much longer than before, now up to a year. Not so long ago, houses were “turned around”, as the jargon goes, within three months.
One consequence of the upheavals:
The good thing about this, at least for the developers. Apartment building prices have fallen massively in the past year, by 25 percent and in some cases even more. However, such price reductions have not yet been seen in individual apartment sales. This means that the margin for developers has increased. Provided they have the necessary staying power to see a project through to the subsequent sale of the apartments. Some companies are currently trying to get the necessary breathing space with expensive bridging loans.
Interest rates expected to stabilize
However, a market shakeout is undoubtedly already underway, which means that the brokerage firm Örag is also recognizing new opportunities for developers. CEO Stefan Brezovich is looking to the near future and expects more properties from non-performing loans to come onto the market in 2024 and 2025. For which there are interested parties, as prices are in many cases 20 to 30 percent below the highs of recent years.
However, it was not only the “interest rate explosion”, but also the strict lending rules introduced in August 2022 that severely curbed demand for residential property. The combination of these two measures has brought the market to a virtual standstill.
New data from the ZT Datenforum for the Austrian Real Estate Association (ÖVI) shows just how much: According to this, there had still been an average of 4560 transactions of condominiums per month in the second half of 2021, and in 2022 there were still an average of 4000 properties changing hands each month. In the first eight months of 2023.
However, there were only 2650 properties on average, which is a decline of 40 percent compared to 2021. In contrast, the supply of condominiums on online portals has doubled.
On the other hand, there has been no major drop in prices so far. The prices of newly built condominiums have remained largely stable and in some cases have even increased slightly compared to the previous year due to the high construction costs. Used properties, on the other hand, have been more affected by the oversupply, according to the ÖVI: “Price fluctuations have certainly been recorded in individual areas.
No major price drop so far
The Austria Property market has changed. According to Immo United, the average purchase price of condominiums across Austria in 2023 will be EUR 5,500, sq mtr and in Vienna EUR 6,500 sq mtr. The OeNB’s property price index for condominiums and single-family homes showed an increase of 1.8 percent for the first quarter of 2023 and a slight decline of 0.3 percent for the second quarter compared to the previous year.
“If you don’t have to sell at the moment, you will hold on to the property and wait or rent it out in the short term,” says estate agent Andreas Wollein. He is a member of the ÖVI board. He also points out that the subdued situation on the property market is causing demand to shift to the rental markets in urban centers.
On the one hand, the supply of rental apartments has already decreased there, for which the ÖVI also blames the principle for estate agent single commissions introduced in July. The supply on the platforms has fallen from 34,000 to around 25,000 units. On the other hand, the rising demand will probably not lead to a fall in rental prices.
The ÖVI therefore expects politicians to “take measures to make it possible for Austrian families to buy an apartment or house again and to stop the further displacement of prospective buyers into the rental sector”.
Uncertain market development in 2024
The Austria Property market has changed. The situation on the housing market is unlikely to ease so easily at the beginning of next year – quite the opposite, in fact. A significant reduction in new construction is expected in the next two years. While around 50,000 residential units in multi-storey residential construction will be completed this year,. This figure is likely to fall to just over 42,000 next year and only around 34,000 in 2025. And the decline is likely to continue, as indicated by the falling number of building permits.
Due to the slump in housing production, there are already warnings of an impending housing shortage. Representatives of the non-profit housing industry have therefore proclaimed the “decade of the non-profit” . They have repeatedly called on politicians to strengthen this sector right now – especially financially. However, the opposite has happened with the recently adopted rent freeze.
(Martin Putschögl, 20.12.2023)
Translated and abridged from the German.
Source: Der Standard