Creditreform Austria’s managing director, Gerhard Weinhofer, believes that real estate bankruptcies will increase in the near future. The industry is facing a toxic mix of rising interest rates, lower property values, and higher construction costs. According to Weinhofer, the economic environment is not solely responsible for these challenges. The long-standing zero-interest policy enabled cheap financing of real estate projects and contributed to a market boom and high profits.
However, Weinhofer believes that companies have not built up enough reserves from their profits for a potential downturn. He stated that the cheap money for two decades has acted like a drug and cannot be abruptly withdrawn without causing significant disruptions to the market. As interest rates rise and loans become more expensive, project financing is becoming increasingly difficult. This situation puts consumers under increasing pressure and many can no longer afford to own their own homes.
These developments have led to an increase in demand for rental properties while supply remains relatively stable. As a result, rents are likely to continue rising, especially for apartments that are not subsidized. While Weinhofer does not expect an acute housing shortage, he believes that the situation will worsen, particularly in eastern Austria where population growth is occurring at a faster rate than other regions of the country.
The turbulence in the real estate sector has already led to an increase in bankruptcies among domestic construction companies. According to Acredia’s latest analysis from January to September 2013, there were 667 domestic construction company bankruptcies filed, which represents a 16% increase compared to the same period last year.