New residential construction in Austria, which has recently seen a significant downturn, is currently the primary concern for the real estate industry. There’s a substantial decrease in the initiation of new construction projects in the residential sector, with numerous projects being put on hold or completely scrapped.
Daniel Riedl, a board member of Germany’s Vonovia (parent company of Buwog), provides an explanation. He says, “The economic feasibility of creating affordable, high-quality housing is currently quite challenging. At present, we have no construction projects lined up for 2024. The combined pressure of increased interest charges and persistently high construction costs are creating substantial difficulties for developers. Our aim is to commence construction as soon as the situation stabilizes,” Riedl declares. However, it remains uncertain when the market conditions will take a turn for the better.
According to Riedl, the construction of rental apartments is currently unprofitable for property developers. “The potential value generated is lower than the production costs,” he explains. This has led to a shortage of supply in the rental apartment sector, exceeding 50 percent, and causing an oversupply of demand, as per Karina Schunker, managing director of EHL-Wohnen. Consequently, the termination of existing rental agreements has decreased, as tenants opt to stay in their current apartments owing to the lack of alternatives, adds Schunker.
In the purchase segment, while the demand has seen an uptick, the speed of utilization has slowed down. Apartment buyers are increasingly being pushed to buy new apartments off-plan, as banks require developers to meet a certain pre-recycling rate before the construction of the building can commence, thus minimizing their risks.
Generally, due to elevated interest charges, purchasing a condominium has become a far-fetched dream for many private buyers. “Affordability is still a major hurdle,” Schunker emphasizes. Especially for those who do not have an inheritance, the requirement of 20 percent own funds and the monthly loan installment can be quite overwhelming.
This situation is leading to a sharp decrease in new constructions. Experts predict only 13,200 apartments to be completed in Vienna this year, marking a decline of over 46 percent when compared to 2019’s record year. Further declines are expected in 2025 and 2026, leading to an inevitable housing shortage in the industry.
