Radical Turnaround In The Real Estate Market?

The world has changed enormously in recent years. A global pandemic, with countless lockdowns. The war in Ukraine, which confronts us with the ultimate energy question. The growing fears of a recession, as well as the slumps on international stock exchanges, are already leaving clear marks on the real estate market.

As several online portals report, demand for properties for purchase fell by 17% in the first quarter of 2022 and by 36% in the second quarter of 2022.

In order to counteract the runaway inflation of now over 9%, the ECB decided in July on its first key interest rate increase since 2011. Further key interest rate increases are in prospect. An additional hurdle slowing down the real estate market is the newly enacted Credit Institutions – Real Estate Financing Measures Ordinance (KIM-VO). Since 01 August, the following guidelines apply to the granting of residential real estate financing:

For the purchase of a property, 20% of the purchase price must henceforth be demonstrated as equity capital, the monthly loan instalment may amount to a maximum of 40% of the monthly net household income, and the loan term may not exceed 35 years.

As if all that were not already enough, property owners with existing loan agreements (with variable-rate loans) face yet another issue. The 3-month Euribor has already risen by more than 1.10 percentage points this year, and the 12-month Euribor by as much as +2.25 percentage points. And these increases will accelerate further with additional key interest rate hikes! For loan agreements with a fixed interest rate, this will also have dramatic consequences once the fixed-rate period expires.

This ordinance serves to reduce systemic risks in third-party financing. The rising interest rates and the resulting significantly higher total costs when purchasing a property are causing the dream of owning one's own four walls to burst for many prospective buyers.

The market is in a phase of adjustment to the new economic reality. Buyers are withdrawing due to uncertainty in the markets, and as a result supply is becoming greater than demand.

For the first time since the financial crisis of 2008, we are seeing such clear price corrections. It will therefore become increasingly difficult for sellers to find buyers for their property in the future.

Erich Schuller +43 664 51 55 837 [email protected] www.4m-immo.at