Property prices have fallen again in the first half of this year. According to Raiffeisen Research, domestic real estate (both new and used) has become an average of 5 percent cheaper since the third quarter of 2022. When adjusted for inflation, however, there has been a decline of 15 percent. “By 2026 at the latest, property ownership is likely to become more expensive again,” said Matthias Reith, Senior Economist at Raiffeisen Research, at a press conference on Monday.
According to Raiffeisen, the real gains in the Austrian real estate market have been lost since the beginning of the pandemic. A “quiet” correction has taken place. “While the correction is not yet over, we have seen most of the adjustments,” Reith stated. “We expect a continuation of nominal price corrections in the second half of 2024.” Unlike in Austria, the correction has progressed further in Germany and can be considered complete.
A trend reversal seems unlikely soon, as the European Central Bank (ECB) is only slowly lowering interest rates. Reith anticipates another rate cut in December. By the end of 2025, the interest rate level will “still be significantly higher than before COVID.”
Inflation and rising costs are increasing rental and property prices. Personnel costs are the number one price driver. Construction prices have remained stable for about two years. However, building costs have risen due to higher material costs and wages. Fewer completions could also soon increase prices.
According to Reith, Austria has “a growth problem, and the economy will shrink again this year.” Only Finland has been hit harder in the housing sector. “Those waiting for low new construction prices may be waiting for a long time,” the market expert said.
According to Raiffeisen Bausparkasse (RBSK), the demand for property financing has declined. By the end of August 2024, loans amounting to €334 million had been granted. “If things go well, the financing demand will reach €500 million; normally, this figure is in the billions,” reported Managing Director Hans-Christian Vallant. However, there are regional differences. Demand has risen sharply compared to the previous year in the expensive federal states of Vienna, Salzburg, Tyrol, and Styria. In contrast, the other federal states have recorded a significant decline in demand.
Vallant noted that the share of loans for construction, renovation, or refurbishment has risen to a historic high of one-third. “New construction financing has fallen to below 8 percent.” The causes are high construction costs, inflation, rising interest rates, and stricter lending rules. “We also have some ideas for the future government, such as waiving the property transfer tax or changes to the land register above a certain amount,” Vallant added. The RBSK chief also called for doubling the renovation rate to 3 percent, emphasizing the importance of revitalizing existing living spaces to promote sustainability and energy efficiency.
