Gerhard Weinhofer, managing director of creditor protection association Creditreform Austria, believes that the number of bankruptcies in real estate will increase in the coming years. The industry is facing a toxic mix of rising interest rates, lower property prices and higher construction costs, which could lead to further upheavals and bankruptcies.
Weinhofer believes that the economic environment is not solely responsible for the industry’s difficulties. This was influenced by the long-term policy of zero interest, which enabled cheap financing of real estate projects and consequently caused a boom in the market and high profits. However, he also notes that cheap money has acted like a drug for two decades and that it cannot be abandoned abruptly.
The long-term upswing in the sector is over, and rising interest rates have made loans more expensive, making it significantly more difficult to finance projects. The situation has also put consumers under increasing pressure and many can no longer afford to own their own home.
These developments have an impact on rents and the construction sector, with demand for property increasing while supply has remained more or less the same. Most consumers are being pushed into the rental market, which is likely to further increase rental prices, especially for non-subsidized apartments.
Weinhofer does not expect an acute housing shortage but predicts that the situation will worsen in eastern Austria where population growth is expected to continue. Turbulence in the real estate sector is already attributed to a visible increase in bankruptcies of domestic construction companies. According to credit insurer Acredi’s current analysis from January 2013 to September 2013 there was an increase of 667 domestic construction companies filed for bankruptcy which represents an increase of 16% compared to same period last year (Reference: [link](https://www.acredi-insurancegroup.com/global/news/2014/05/05/acredi-credit-insurance-company-releases-analysis-of-the-austrian-construction-.html)).