The COVID-19 virus, also often referred to as the “coronavirus”, has become one of the central phenomena of 2020. The pandemic that has swept the world, affected many aspects of our daily life and, of course, the economy. Stock market indices have shown their strongest quarterly decline since 1987, millions of people have lost their jobs, and businesses around the world have had to adapt to work from home. In this and the next article, we will focus on the situation on the real estate market in Austria, in particular in Vienna and Lower Austria.
It should be noted that in comparison with the rest of the EU, the decline in the Austrian economy is not so strong, especially in comparison with Italy, Spain, and France, but the return of GDP to the pre-crisis level is expected only by 2022-23.
Another important aspect is the very nature of the current economic problems. While the economic crisis of 2008 was caused, among other things, by the mortgage crisis in the real estate market in the United States and the difficult situation in the banking sector, although the current crisis has reduced activity in the market, the projects that have been started continue to be built, the above-mentioned stock and financial markets are recovering, the real estate market is feeling quite optimistic. Liquidity indicators in the construction business are close to the averages for other sectors of the economy.
Construction projects in Lower Austria and Vienna
To begin with, let’s talk about the situation with already running construction projects. The difference between Vienna and Lower Austria is quite striking and is caused by the difference in price per square meter and the size of households. In Vienna, prices are higher, many households consist of 1-2 people, therefore apartments with 1-2 rooms and a smaller in size than in Lower Austria dominate in projects. A typical project in Lower Austria has an average of 76.5 square meters of living space, 11.7 square meters of loggia/balcony/terrace or garden, and 1.62 parking spaces. 31% of projects are 4 and more room apartments.
In Vienna, projects have more apartments (63 versus 25), but their size is on average 10 square meters less – 65.6, fewer parking spaces – 0.81 and less free area for balconies and other things – 9.1 square meters. 50% of the apartments have 1-2 rooms. This difference allows housing in Vienna to remain affordable. Most of the projects in Lower Austria are built in cities and areas with good infrastructure and transport links to Vienna – Industrieviertel and Mostviertel.
Changes in demand
After sitting in their apartments during quarantine, people began to take an active interest in improved opportunities for living outside cities and with more free space. According to a recent survey, 50% of Austrian residents are looking at new real estate, of which 30% focus on apartments with a balcony or a house with a garden. 17% would like to move out of town. The number of searches increased, in particular for houses in Lower Austria, thanks in large part to the proximity to Vienna. Styria and Upper Austria are other popular regions.
P2P business and real estate market
P2P (Peer-to-Peer / Person-to-Person) – a business model without intermediaries, has reached a new level of its development in the days of the Internet. This model is also present in the real estate market, mainly associated with Airbnb, where real estate is rented for short-term rent. In the face of significant restrictions on movement, the opportunities to earn money for such landlords have significantly deteriorated, many have reoriented themselves to clients from Austria itself or switched to long-term rental and even sale of housing on the secondary market.
The rental market and the coronavirus
Despite the unfavorable economic situation, prices on the rental market remain stable and even growing. In Vienna, the average rental price per square meter is 14.10 €. In Lower Austria, the average price varies by area, with the highest at € 12.10 in Mödling and the lowest at € 7.70 in Lilienfeld. And this is also despite the significantly increased supply – the number of small-area apartments offered for rent (up to 60 sq. m.) has almost doubled compared to the beginning of the year. This growth is especially noticeable in Vienna, where Airbnb services flourished until recently.
Real estate prices
As noted above, property prices continue to rise. On average, in Austria in the first quarter of 2020, prices rose by + 3.4%, which is even higher than the last quarter of 2019 with + 3%. In Vienna, meanwhile, growth momentum eased slightly, + 3.9% from + 4.3% in the last quarter of 2019. This affected, however, not all real estate sectors. Thus, prices for new condominiums (Eigentumswohnungen) also increased (+ 5.3%), albeit not as dynamically as last year, but prices for family houses (Einfamilienhäuser) increased by + 10.4% at once compared to the same quarter of 2019 and + 8.2% compared to the previous quarter.
Real estate market and new technologies
The regime of isolation and social distancing has added problems to both sellers in the real estate market and buyers. Strict but necessary rules were imposed on the listing procedure. However, this significantly reduced business activity in the field, brokers note a 60-70% decline in activity compared to the situation before the introduction of restrictions on social contacts. Many preliminary agreements had to be postponed for the future. After the restrictions are gradually lifted, a gradual return to the normal pace of business is expected. We can say that COVID-19 also had a positive impact: the situation pushed companies working in this area to invest more actively in digital marketing and remote communication with customers.
The commercial property has difficult times
Due to the hard epidemiological situation, businesses across Austria had to close their branches, shops, restaurants for many weeks. In such conditions, the demand for real estate with a commercial purpose could not but fall. In the second quarter of 2020, 30.596 square meters of such real estate was rented out – the lowest figure in the last 4 years. But not everything is as bad as it seems – in the first quarter of 2020 this figure was only 12.977 square meters and this growth cannot but cause optimism.
The future of the real estate market
Realistically predicting the situation in the real estate market is difficult, as in all other markets, due to the significant uncertainty with the development of the situation with the coronavirus. After several months with significant restrictions aimed at preventing the spread of the virus, a period of gradual mitigation began, but after a while, some restrictions still had to be returned. Unemployment has increased and the process of obtaining loans has become more difficult. All of this in the long term can have a strong negative impact on market conditions. On the other hand, many Austrians, faced with movement restrictions, decided to give up expensive vacations and travel, and leave the saved money to pay off housing loans. Besides, despite the decline in investment volume compared to last year, real estate in Austria is still an attractive investment for foreign investors.
Alexandr Timofeev CEO Salls Bauprojekt GmbH • housing project “Schlossseyring” www.schlossseyring.at