Vienna, Austria's capital, is not only one of the most liveable cities in the world, but it is also a very stable real estate market for investors in Europe. Due to its location in the heart of Europe and near to the CEE countries, it does have a function as a gateway to these regions. For decades, Austria has been showing positive and stable economic data. Austria and particularly Vienna are, therefore, attractive to national and international enterprises and investors, in particular because the markets in Western and Eastern Europe again grow after the slump in the years following the Lehman crisis. In addition, Vienna is an attractive location for many international organisations and major companies; one of the four headquarters of the United Nations as well as the seats of the OSCE, OPEC, IAEA and UNIDO are located in Vienna. Furthermore Vienna has become more and more popular for companies active in research and development.
In 2016, the following main real estate trends could be observed
- After a record year in 2015: A further increase of the volume of transactions on the Austrian market, with residential real estate still in the focus
- Stronger focus of international investors in Austria, with Vienna showing attractive yields compared to other investment locations
- Real estate investors expect more competitors from Asia
- Increase of the market participant's risk appetite
The Austrian Real Estate market is attractive to international investors. Due to a recent study, 94% of investors regard the property location Austria attractive or very attractive. And approx 80% believe that the number of international investors, especially from Asia, will further increase within the next 2 years. Already today, there are as many investments as before the Lehmann crisis in 2007.
And again the market shows a considerable number of forward purchase transactions and forward funding deals, however with the difference that today much more equity seeks investment, so the risks of running into a real estate "bubble", even in the event of an interest increase, should be much lower than in 2007.
Following several large transactions, commercial property investment volumes in 2015 reached an amount of Euro 3 bn. Austrian investors were the largest group of buyers, with private buyers, especially private foundations, increasingly pushing into the commercial market as a result of high residential property prices. In particular, demand in the core segment has continued to be strong in 2016, albeit there is a scarce supply of prime assets.
Residential real estate
Especially due to the low level of interest rates and the fear of inflation investments in residential real estate are a major driver in the Austrian market. Despite the price increases of the past years, a further rise in prices is expected.
Probably the prices for luxury homes have stabilized on a high level. But due to further immigration into Vienna – growing by approx 25,000 inhabitants per year – the prices for apartments will still rise. Rising rents will, however, probably result in a major problem as wages and salaries currently do not keep up with the rise of the living expenses.
Office and retail real estate
Vienna remains one of the most stable office markets in Europe, also due to its stable rental profile as well as its economic, social and political conditions. An increasing number of investors prefer Vienna to other main European cities because of the higher yield for investments, compared to cities like Munich or Zurich.
Also retail properties are increasingly sought by investors. The demand in inner city locations remains solid. And as of law changes in most of the Austrian federal provinces, the prices for retail and shopping centers have increased because due to the new legislation new retail parks will within a close proximity to cities hardly reveive the required permissions. Against the trend to retail properties, in general, is the increasing influence of the e-commerce market; however as far as the large retailers can implement their internet sales into their strategy ("click-and-collect", etc), this influence is at least under short term view not expected to stop the increasing demand for retail properties.
Student living and hotel real estate
In the last 5 years the investments in hotels real estate increased solidly. Especially international investor funds and pension funds invested considerable amounts across Austria's Hotel market into this asset class. Also, as Vienna and other Austrian cities such as Graz, Linz, Salzburg and Innsbruck are well-known for their universities, in particular for German students, more and more international students move to Austria. This development has led to a rising market for student residences, which have become a new asset class in Austria in the past years.
New forms of credit procurement
Beside typical forms of bank loans, new forms of credit procurement started in the last years on the Austrian market. Caused by very low interest rates also insurance companies and pensions funds started to grant loans to real estate developers. And liberalisation in the capital markets legislation has allowed also alternative forms of real estate financing, like crowd funding, which is getting more and more popular in Austria.
Investments in Austrian Real Estate by Foreigners
Property can be owned by any individuals or legal entities with legal capacity. The land transfer acts of the nine Austrian Federal States set out different restrictions for the acquisition of land, secondary homes or agricultural and forestry land by foreigners. Therefore, prior to acquiring a property it needs to be verified whether any approval is required. In principle it can be said, however, that EU citizens (both legal entities and natural persons) may acquire land in Austria under the same conditions as Austrian citizens.
In order to acquire ownership in Austrian properties and apartments, a written purchase agreement with signatures to be notarized by a notary public is required. The buyer then has to apply for registration of ownership in the Land Register with title to the property vesting in the buyer only upon such registration.
The Austrian Land Register is a public electronic register in which all properties are registered and for each piece of land an own entry with a specific registration number is established. Information contained in the Land Register enjoys specific protection if the purchaser has relied on the correctness of the information contained in the register in good faith, therefore it is advisable to obtain all information from the Land Register before acquiring real estate. From the land register it can also be seen whether a property is in common (freehold) ownership or whether Condominium Ownership is registered, a special form of co-ownership which grants each co-owner the right in rem to the exclusive use of an independent unit (e.g. an apartment or specific business premises). Forms of ownership are:
1) Freehold ownership ("Eigentum"): The owner of the freehold title owns both the land and the building on it for unlimited time. Only in specific cases is ownership of the building separated from ownership of the land. Ownership can take the form of sole ownership ("Alleineigentum"), with the sole right to control and dispose of the land, or co-ownership ("Miteigentum"), with multi-ownership that share the right to dispose of the land.
2) Condominium ownership ("Wohnungseigentum") usually relates to residential apartments but can also apply to part-ownership of commercial premises, e.g. a shopping centre or a hotel as part of a building. The condominium owner has the right in rem to the exclusive use of a specific unit within a larger property, such as an apartment or an office, and has co-ownership of communal areas.
3) Building lease ("Baurecht"): Ownership of a building is granted for a fixed long-term period along with the right to use, but not to own, the related land. Building rights may be granted for periods of 10 to 100 years. These rights are entered into the land register and can be sold or inherited and the holder is entitled to encumber the building lease with such encumbrances (like mortgages) being registered in the building lease portfolio of the land register. An annual ground rent ("Baurechtszins") is payable to the land owner.
4) Similar to a building right, also a superstructure ("Superädifikat") is a building owned by an entity different from the land owner.
Taxes and fees incurred with the purchase of real estate:
The purchase of a property is subject to property transfer tax ("Grunderwerbsteuer") in the amount of 3.5% of the consideration paid, but at least from the property value (fair value). Where no consideration is paid, i.e. in case of donations etc., the tax base is also the property value. However, in order to minimize the property transfer tax for such transfers, in particular for donations within the family, the tax rate is scaled as follows:
- 0.5% for the first EUR 250,000
- 2.0% for property value(s) between EUR 250,000 and EUR 400,000
- 3.5 % above EUR 400,000.
The registration of the purchase in the land register, which is necessary for completing the acquisition process, involves a registration fee of 1.1%.
As regards the seller, income generated from the sale of privately owned land is in general subject to real estate income tax ("Immobilienertragssteuer"). The usual tax rate amounts to 30% calculated from the seller's profit, and for properties not transacted for a specific time, the tax is calculated as a lump sum percentage of 4.2% of the purchase price.
For the preparation of the sales contract as well as the notarized signing, the buyer has to calculate between roughly 1-3% of the purchase price (plus VAT and expenses) as lawyer's fees, depending on the total amount of the purchase price. In addition, 3% plus tax will usually be the commission for the real estate agent, which can accrue on both sides. Generally, if roughly calculating the total transaction costs for the purchase of real estate, one may roughly estimate the above taxes and fees, broker fees and lawyer and notary costs for a purchaser at up to 10% of the purchase price, and 4.2% for the seller.