Growth in real estate prices remained strong, with prices outside of Vienna converging toward levels in Vienna

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Austrian property market review, online issue 2/19 (in German)

The upturn in Austrian real estate prices took hold in 2018, with year-on-year growth coming to 7.1% in the fourth quarter of 2018, after 8.0% in the third quarter. Quarter-on-quarter price growth had slowed down somewhat, however. Excluding Vienna, Austrian real estate prices rose by as much as 8.2% in the fourth quarter year on year (third quarter: +9.7%), compared with slightly more moderate rates for Vienna (+6.5% and +6.4% in the two final quarters).

For the year 2018 overall, real estate prices went up 6.8% year on year in Austria including Vienna (following 3.8% in 2017), 8.4% in Austria excluding Vienna and 5.2% in Vienna.

Residential property prices in Austria  
  Q4 18 Q3 18 Q2 18 Q1 18 Q4 17 2017 2016 2015 2014 2013
 
Annual change in %
Austria  7.1  8.0  5.0  7.3  4.7 3.8 7.3 4.1 3.5 4.7
Austria excl. Vienna  8.2  9.7  6.0  1.0  7.3  4.9  9.1  5.1  3.1  2.7
Vienna  6.4  6.5  4.2  3.5  0.3  1.5  3.8  2.2  4.2  8.7
 
Quarterly change in %
Austria   -0.3  2.8  0.6  3.8  0.6   x   x   x   x   x
Austria excl. Vienna   0.7  2.6  0.5  4.1  2.1   x   x   x   x   x
Vienna   -0.8  2.9  0.7  3.5  -0.7   x   x   x   x   x
 
Index (2000=100)
Austria  202.7  203.2  197.6  196.4  189.3  187.2  180.4  168.1  161.4  156.0
Austria excl. Vienna  193.4  192.0  187.1  186.2  178.8  174.9  166.7  152.9  145.4  141.1
Vienna  234.1  236.1  229.4  227.7  220.1  220.4  217.2  209.2  204.6  196.3
 


Growth in housing supply currently outpaces increase in demand

In the fourth quarter of 2018, the OeNB fundamentals indicator for residential property prices1 pointed toward an increase in the overvaluation of residential property in Austria of 13%, with overvaluation in Vienna equaling 23%. Overvaluation hence decreased slightly in the final three months of 2018 against the previous quarter. Yet from a longer-term perspective, real estate price developments – especially in Vienna – increasingly deviate from the changes in the explanatory factors tracked by the OeNB’s fundamentals indicator for residential property prices.

Like in the previous year, housing construction grew at a lively pace also in 2018. While, according to Statistics Austria, some 60,200 new homes were completed in 2017, the number of newly constructed homes was around 6,500 higher in 2018 in line with OeNB estimates. Given that building permits were declining in 2018 following a record high in 2017, the building boom seems to be petering out. Housing demand, which had peaked at 71,500 homes in 2016, contracted notably, running to 45,400 homes in 2018. As a result, the undersupply of housing, which had stood at 64,000 homes in 2016, went down to 31,000 homes in 2018. The undersupply throughout Austria (excluding Vienna) is expected to be remedied by 2020, whereas Vienna is likely to face a housing shortfall also in 2020.

Housing loans to households grow at a steady pace

Growth of housing loans to households continued at a broadly stable rate in early 2019, with year-on-year growth coming to 5.0% in March 2019. Credit standards for housing loans to households were tightened somewhat in the first quarter of 2019, but as lending rates continued to go down, they equaled 1.77% in March 2019, down 5 basis points year on year. At 2.21%, the effective annual rate of interest on housing loans, which reflects total borrowing costs (interest rate component and related charges), was, however, marginally (i.e. 1 basis point) higher in February 2019 year on year.

The share of variable rate loans (with an initial rate fixation period of up to one year) in new loans averaged 45.4% in the twelve months leading to March 2019 (March 2018: 51.1% year on year). The share of foreign currency loans in housing loans came to 11.4% in March 2019, down 1.5 percentage points from one year earlier.
 

1 The OeNB’s fundamentals indicator for residential property prices shows deviations between actual real estate prices and the values justified by underlying fundamental factors.