Market Trends
The equity hour
Debt financing for investment property has become difficult to find and rather expensive – but for high-equity investors, price declines and negative real interest make today’s market even more attractive.
Vienna‘s investment property market may be difficult this year, but it also holds particularly good opportunities for certain market players. Investors who financed their acquisitions primarily with debt in the past are faced with a climate that is not very attractive, while the situation for high-equity buyers is completely different. The traditional function of real estate, in general, and of investment property, in particular, as nearly perfect protection against inflation has become dramatically more important since the start of the war in Ukraine. Investors who can draw on sufficient equity to realise acquisitions with no or only minimal debt benefit from several important factors: Transactions are currently possible at more favourable terms due to price declines that typically range from 5 to 15 per cent of the previous record highs, while the sharp rise in inflation has led to clearly negative real interest and, due to indexing, also to a steady increase in yields. And last but not least, the market is seeing more and more investment properties tendered by owners who had never thought of selling only a short time ago. Austrian private investors and private foundations, in particular, are increasingly sounding out opportunities to develop and expand their portfolios. Their main focus is on properties at central locations or top micro- locations in the outlying districts. Here, potential buyers tend to act quickly instead of waiting for further but uncertain price declines and possibly missing out on a unique opportunity. The approach for average locations is more wait-and- see, but this situation will change quickly when
the interest rate cycles end and the price level stabilises.
„Buyers’ interest will return quickly when the interest rate hikes end“
The market also holds opportunities for developers – but only when value-increasing measures are involved. Simple property turnovers and superficial improvements are not enough to generate an earnings potential. In contrast, developers who refurbish and modernise properties at good locations in line with ESG principles can produce high-quality living space that covers the renovation costs and brings a very respectable return on investment for future sales.
Herwig Michael Peham MRICS Head of Investment EHL Investment Consulting GmbH
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