• Fri. Dec 8th, 2023

Austria’s Construction Industry Faces Financial Uncertainty with Addiction to Cheap Money


Nov 20, 2023

Gerhard Weinhofer, the managing director of Creditreform Austria’s creditor protection association, believes that real estate bankruptcies will increase in the coming months. The real estate industry is facing a toxic mix of rising interest rates, declining property prices, and higher construction costs, which may lead to further upheavals and bankruptcies.

Weinhofer believes that the economic environment is not solely responsible for the industry’s difficulties. The long-standing zero-interest policy enabled cheap financing of real estate projects and subsequently triggered a boom in the market and high profits. However, this has raised questions about whether companies have built up enough reserves from their profits for a turnaround.

The cheap money for two decades acted like a drug and cannot be left abruptly. The long-term upswing in the sector is over, and rising interest rates have made loans expensive, making project financing noticeably more difficult. This situation has put consumers under increasing pressure, and many can no longer afford to own their own home.

These developments have impacts on rents and the construction sector, with demand for property increasing while supply remains relatively constant. As a result, many consumers are being pushed into the rental market, which is likely to further increase rental prices, especially for apartments that are not subsidized.

Weinhofer does not expect an acute housing shortage but believes that the situation will get worse, particularly in eastern Austria where population growth is occurring rapidly. According to a recent analysis by credit insurer Acredia, from January to September 2013, 667 domestic construction companies filed for bankruptcy – a 16% increase compared to the same period last year.

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