COVID-19 crisis, residential real estate market proves more robust in the first quarter of 2020 than commercial real estate market
(, Vienna)Implications of the COVID-19 pandemic for the Austrian real estate market
In its current online issue of “Austrian Property Market Review” (in German), the Oesterreichische Nationalbank (OeNB) analyzes how the Austrian real estate market reacted to COVID-19. The residential real estate market proved more resilient compared with the market for commercial real estate, having registered slight price increases for three quarters in a row.
For Austria as a whole, residential real estate prices increased year on year by 3.4% in the first three months of 2020, up from +3.0% in the fourth quarter of 2019. In Vienna, year-on-year growth of residential real estate prices came to +3.9% in the first quarter of 2020, having edged down from +4.3% in the previous quarter. In Austria excluding Vienna, the analogous growth figures amounted to +2.8% for the first quarter of 2020, up from +1.2% in the fourth quarter of 2019. In terms of quarterly change, price growth doubled in the first quarter of 2020.
| Q1 20 | Q4 19 | Q3 19 | Q2 19 | Q1 19 | Q4 18 | Q3 18 | Q2 18 | 2019 | 2018 | 2017 | 2016 | 2015 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Annual change in % | |||||||||||||
| Austria | 3.4 | 3.0 | 2.3 | 7.3 | 5.0 | 7.4 | 8.0 | 5,0 | 3.9 | 6.9 | 3.8 | 7.3 | 4.1 |
| Austria excl. Vienna | 2.8 | 1.2 | 1.7 | 3.8 | 4.1 | 8.5 | 9.7 | 6,0 | 2.6 | .0,5 | 4.9 | 9.1 | 5.1 |
| Vienna | 3.9 | 4.3 | 2.7 | 9.8 | 5.5 | 6.7 | 6.5 | 4,2 | 4.9 | 5.2 | 1.5 | 3.8 | 2.2 |
| Quarterly change in % | |||||||||||||
| Austria | 1.7 | 0.8 | -0.4 | 2.9 | 1.4 | 0.1 | 2.8 | 0.6 | x | x | x | x | x |
| Austria excl. Vienna | 1.5 | 0.6 | 0.8 | 0.2 | 0.0 | 1.0 | 2.6 | 0.5 | x | x | x | x | x |
| Vienna | 1.9 | 1.0 | -1.2 | 4.8 | 2.3 | -0.6 | 2.9 | 0.7 | x | x | x | x | x |
| Index (2000=100) | |||||||||||||
| Austria | 213.1 | 209.5 | 207.8 | 212.1 | 206.1 | 203.3 | 203.2 | 197.6 | 208.0 | 200.1 | 187.2 | 180.4 | 168.1 |
| Austria excl. Vienna | 199.3 | 196.3 | 195.2 | 194.2 | 193.8 | 193.9 | 192.0 | 187.1 | 194.8 | 189.8 | 174.9 | 166.7 | 152.9 |
| Vienna | 249.6 | 244.9 | 242.4 | 251.9 | 240.3 | 234.8 | 236.1 | 229.4 | 234.2 | 232.0 | 220.4 | 217.2 | 209.2 |
| Source: DataScience Service GmbH (DSS), Vienna University of Technology, Prof. Feilmayr, OeNB. | |||||||||||||
Slumping demand affects real estate market segments to varying degrees
According to real estate companies, demand for rented property declined in light of coronavirus containment measures. Demand for buy-for-rent property is likewise showing signs of slowing, with the decrease expected to be less pronounced than for condominiums. In the commercial real estate segment, rented retail space has been particularly hard hit.
Real estate companies show below-average solvency and liquidity positions
The measures enacted to contain the spread of COVID-19 have caused a substantial share of companies to suffer notable losses that, in turn, drive down equity ratios. In construction, the equity ratio is close to the aggregate average of all sectors. In the real estate sector, a sizable share of companies with a negative equity ratio makes the entire sector more vulnerable. The liquidity position of the real estate sector also lies below the aggregate average.
Construction registers high losses in value added but a relatively mild increase in unemployment due to short-time working arrangements
In the five weeks from March 9 to April 12, 2020, value added in the construction industry contracted by 37% on account of COVID-19 containment measures (aggregate economy: –29%). At –18%, the losses in value added incurred by real estate companies were visibly lower. Many construction companies resorted to short-time work, with applications for such arrangements covering 54% of total construction workers on payrolls on May 31, 2020, which was clearly above the aggregate percentage (37%). Due to improved weather conditions, unemployment in construction started to drop in mid-March 2020.
Real estate plays critical role for household and corporate loans
As an asset that is pledged to the lender, real estate is crucial for securing bank loans. At the end of 2019, close to 60% of loans to domestic nonbanks were mortgages. At 54%, the share of funding for real estate projects in all loans to nonbanks was at a comparable level.
In the first quarter of 2020, residential housing loans to households did not yet show a noteworthy COVID-19-releated effect. Loan growth edged up during that period, clocking in at +6.0% year on year in March 2020.