General slowdown in real estate price growth in Austria

(, Vienna)

Real estate prices in Vienna still increasing strongly

According to the most recent property market review of the Oesterreichische Nationalbank (OeNB), growth in residential property prices in Austria including Vienna slowed down considerably in the third quarter of 2019, declining from 7.3% in the second quarter to 5.2% year on year. In Vienna, the rate of real estate price growth, which had still been exceptionally high in the second quarter, went down to 7.6%. In Austria excluding Vienna price pressures, which have been easing since mid-2018, continued their downward trend; at 1.8% in the third quarter, the respective rate was 2 percentage points lower than in the second quarter. However, prices for resale condominiums both in Vienna (and in Austria excluding Vienna (grew at above-average rates (8.2% and 3.8%, respectively).

Residential property prices in Austria  
  Q3 19 Q2 19 Q1 19 Q4 18 2018 2017 2016 2015 2014 2013
Annual change in %
Austria  5.2  7.3  5.0  7.4 6.9 3.8 7.3 4,1 3.5 4.7
Austria without Vienna  2.8  3.8  4.1  8.5  8.5  4.9  9.1  5,1  3.1  2.7
Vienna  7.6  9.8  5.5  6.7  5.2  1.5  3.8  2,2  4.2  8.7
Quarterly change in %
Austria  0.8   2.9   1.4   0.1   x   x   x   x   x   x
Austria without Vienna  0.7   0.2   0.0   1.0   x   x   x   x   x   x
Vienna  0.9   4.8   2.3   -0.6   x   x   x   x   x   x
Index (2000=100)
Austria  213.8  212.1  206.1  203.3  200.1  187.2  180.4  168,1  161.4  156.0
Austria without Vienna  195.5  194.2  193.8  193.9  189.8  174.9  166.7  152,9  145.4  141.1
Vienna  254.1  251.9  240.3  234.8  232.0  220.4  217.2  209,2  204.6  196.3

Real estate prices still deviate significantly from fundamentals, but deviation has ceased to increase
For Vienna, the OeNB fundamentals indicator for residential property prices1 suggests that in the third quarter of 2019 prices have deviated from fundamentals by 26%. For Austria including Vienna, this rate amounts to 14%. In the longer term, the explanatory power of fundamental factors for developments in residential property prices – particularly in Vienna – will be less and less pronounced.

Residential construction still going strong in 2019, but number of building permits receding
The Austrian residential property market has been easing gradually since 2017 on the back of a stronger increase in construction activity and weaker demand. In 2018, investment in residential construction rose by 6.2%; in the first three quarters of 2019, growth reached an average of 5.2% and was thus more or less stable compared with the same period a year earlier. This development shows the construction sector’s reaction to the demand backlog that has built up for several years. However, the number of building permits, which has been on the decline since the latest peak in 2017, indicates that the construction boom will soon end.

Growth of housing loans to households slightly accelerating
At a rate of 5.2% in September 2019 (year on year), growth of housing loans to households accelerated slightly in the third quarter of 2019. Credit standards for housing loans to households were again tightened somewhat in the third quarter of 2019, but lending rates decreased and came to 1.54% in September 2019, down 29 basis points year on year.

The share of variable rate loans (with an initial rate fixation period of up to one year) in new loans averaged 44.4% in the twelve months up to September 2019 (September 2018: 44.7% year on year). The share of foreign currency loans in housing loans came to 10.7% in September 2019, down 1.5 percentage points from one year earlier.

1)The assessment of the situation in real estate markets needs to take into account not only price growth but also other factors, including new mortgage loans, demographic developments, expectations of returns from alternative forms of investment and the expected path of interest rates. The OeNB’s fundamentals indicator for residential property prices shows deviations between actual real estate prices and the values justified by underlying fundamental factors.