Investment Apartment Market Report | Spring 2024

Market Report Spring 2024

We stand for real estate.

Goldschlagstraße 191 1140 Vienna

Introduction

Several rapid rises in interest rates and the resulting economic downturn were challenging conditions for the real estate markets, which led to a marked decline in construction activity, particularly in residential construction. However, it is precisely this development that offers new opportunities and has made investing in investment apartments particu- larly interesting again. For the first time in several years, there is a clear excess demand and rents are rising more dynamically than purchase prices. Increased inflation contri- butes to the fact that initial yields quickly lead to significantly better returns due to the indexation of residential rental contracts. This in turn results in continuously increasing cash flows and optimized returns.

In 2024, the investment of an investment apartment will therefore once again enjoy particularly high demand and attractiveness. Given the potential for tax optimization and the current developments on the Austrian residential property market, investor apart- ments are still among the safest investment opportunities. The EHL investment market report provides an overview of the most important develop- ments and trends in the submarkets for investors and those interested in the market. The experts from the EHL Wohnen team will be happy to assist you with their extensive market knowledge in the successful imple- mentation of an individual and customized investment strategy.

KarinaSchunker, MA MRICS

Andrea Pöchhacker, MSc

Managing Director EHL Wohnen GmbH

Authorized signatory Head of Residential Investments EHL Wohnen GmbH

Facts & Figures

The investment property market shrank significantly in the previous year. However, there were already clear signs of recovery in the second half of the year, which will continue in 2024. The significant increase in rents coupled with largely stagnating purchase prices is reflected in higher initial yields. The very low vacancy rate on the Viennese residential market and the stabilization of the interest rate landscape are also positive signals for the market.

Number of investment apartments sold in Austria

Average purchase prices of transactions (in euros/sqm)

2,000

5,000

4,910

4,830*

4,000

1,778

1,500

4,340

4,032

1,455

3,000

1,422

1,000

2,000

875*

500

1,000

2020

2021

2022

2023

2020

2021

2022

2023

*Preliminary data

Kobelgasse 9 1110 Vienna

Lore-Kutschera-Weg 11 1120 Vienna

The rapid comeback of the investment apartment

The slump in market volume in 2022 was followed by a noticeable recovery in the second half of 2023. The familiarization phase with the new market conditions is over and the advantages of long-term investments in stable tangible assets are now taking center stage again.

The interest rate trend in 2022 and 2023 was a challenge for the entire real estate market and therefore also for real estate investors. The number of transactions decreased by around 35% year-on-year in 2023, although there was no significant change in sales prices. However, as quickly as the market trend was characterized by caution, senti- ment changed again. There was a significant increase in demand from the summer onwards after still weak figures in the first half of 2023,

which was then reflected in correspondingly rising sales figures in the fall. Prices have not only stabilized but are approaching the record levels of early 2022. In some submarkets, they are now even higher.

There are a number of reasons for the rapid comeback of the investment apartment as one of the most popular forms of investment for private investors in the upper income bracket, which together more than offset the factor of higher financing costs and more attractive fixed-interest investment alternatives:

New prospects for an investment classic

After many years of largely stable monetary values, the role of real estate as an optimal inflation hedge is being rediscovered. After the restraint following the interest rate shock in 2022, this has now become an important motive for security-oriented and long-term private investors to invest in investment apartments again. The comeback of the classic investment property is therefore anything but surprising and the opportunities that are opening up for investors far outweigh the risks: Higher yields, indexation of rents has become more important and the decline in housing production means stable tenant

demand for investment property buyers. The current situation should therefore be seen as a window of opportunity for private investors who are primarily looking to invest equity. The affordable housing segment remains particu- larly attractive. The new economic situation is leading to an increase in demand for more cost-efficient rental apartments. This also applies to rental apartments with more than two rooms, which are gaining in importance, especially with compact floor plans.

Improved returns

Decreasing vacancy risk

In Austria‘s major cities, rents rose significantly faster than purchase prices in 2022 and 2023. This enables noticeably higher initial yields, even in good locations, which are also rising faster than in the past due to high inflation.

Due to the decline in the production of new space that has already occurred, and consequently in the forecast com- pletion figures for 2024 and 2025, a significant decline in supply is also to be expected on the strongest investment housing markets such as Vienna, Graz, and Linz. The result is significantly improved letting opportunities. Vacancy rates are falling steadily and the periods without income when tenants change are also becoming noticeably shorter.

Indexing

The increase in income due to indexation with the CPI is currently significantly stronger than in the past and will remain so for some time to come. This effect largely compensates for the disadvantage on the financing side.

New build scores with climate friendliness

The climate crisis and the associated pressure on investors to make sustainable investments in existing properties is also indirectly favoring investments in climate-efficient new construction projects.

Proven concept of a retirement home

For around four decades now, investing in apartments purchased for rental has been one of the most popular investments for Austrian private investors in the middle and upper income bracket. It offers value stability, continuously rising cash flows, a long-term perspective, good protection against inflationary tendencies, property secured by land register and, last but not least, a number of tax advantages. Investment apartments are purchased either at the planning or construction stage or from a developer after completion. The investor can reclaim the input tax included in the purchase price (20 percent on the construc- tion costs, but not on the land portion). To do this, the apartment must be rented out and

may not be used by the owner. A total surplus (rental income less depreciation, interest on borrowed capital and costs) must be achieved within 20 years. A higher debt ratio increases the return on equity but can jeopardize the achievement of the overall surplus. As a rule, therefore, a maximum of 50 percent debt capital is used.

Returns or tax benefits - in the end, the quality of the property is decisive for the long-term success of an investment property. The most important decision criteria should therefore always be the location of the pro- perty, market-appropriate floor plans, good fittings, and structural quality.

Average purchase prices in a city comparison (in euros/sqm)

5,810* 5,855

5,000

5,060*

4,498

3,000

3,473 3,520*

3,470* 3,334

1,000

Vienna

Graz

Linz

Klagenfurt

*Preliminary data

2022

2023

Source: EHL Market Research | Q4 2023

Investing as a foundation

Dr. Bauer, you are a board member of several foundations that invest in real estate. Do you still consider investment apartments to be a promising investment opportunity, even under the changed market conditions?

Absolutely. Although for the first time in many years, alternatives such as fixed-term deposits or bonds are once again generating significant returns, these are still below the rate of inflation. Real estate - at least in Austria‘s metropolitan areas - will continue to maintain its real investment value plus a certain return. Due to the rapid decline in new residential construction, demand for rental properties will rise sharply in the coming years, which will be of particular interest for new-build apartments that are not subject to rent restrictions. In my view, the acquisition of investment apartments is therefore still a sensible and secure investment opportunity in the long term.

In particular, however, foundations often have investment guidelines that are not met by the returns from investment apartments.

Real estate investments are measured by different standards than fixed-interest investments, for example. It would be wrong to focus solely on the calculated initial yield without considering the expected development in the value of the property. Since at least a real preservation of value and possibly also an increase in value can be expected, a lower nominal return can be accepted, as this should also increase continu- ously due to inflation as a result of the indexation of rents. Incidentally, investment apartments are at least as attractive as whole properties, even if the management is a little more complex for an investor. By buying individual apartments in different locations, a certain degree of risk diversification is achieved - and a later sale is also easier and quicker.

What is your assessment of the risks?

In addition to market risks, which everyone must of course assess for themselves, it is also important to pay attention to legal risks. Although an investor is protected by the Property Developer Contract Act (payments for properties not yet completed go first to a trustee) for properties that are still under construction, it is nevertheless advisable, especially in the current market situation, to seek comprehensive advice from real estate specialists who work with experienced and trustworthy developers. In addition, it is now perhaps even more import- ant than before to pay attention to legal details. For example, it is preferable from a legal point of view to have the condominium ownership entered in the land register upon payment of the purchase price and not only upon completion of the property. Security is anything but a subtlety.

Dr. Andreas Bauer

Lawyer, Partner at Brauneis Rechtsanwälte

Edi-Finger-Straße 7c 1210 Vienna

The KIM Ordinance in the preventive investment

Provisions of the KIM Ordinance

with the regulation in principle when financing the purchase of investment apartments and must check whether the borrower meets the criteria. However, there are considerable differences in the application of the regulation to the financing of owner-occupied apartments. In particular, the expected rental income must also be considered when determining the per- missible amount of the monthly installments. There are also constellations in which the KIM Regulation does not apply at all, especially if the purchase qualifies as a commercial activity. This is the case, for example, when an investor buys a large number of apartments in total (most banks set the limit at four to

five units). Even if the purchase is made by a limitedliabilitycompany(GmbH),thepurchase is commercial - this is possible in the case of sole proprietorships or partnerships but must be checked on a case-by-case basis. Although the KIM Ordinance is a hurdle for investors, it is generally easy to overcome.

· To be applied when granting loans for the private purchase of residential real estate

· At least 20% equity · Monthly repayment

installment: max. 40 % of the household income

· Term: max. 35 years

The primary intention of the KIM Ordinance is to prevent households from purchasing condominiums that exceed their financial means. Nevertheless, banks must also comply

Tax challenges in times of upheaval

The changed market conditions also have indirect consequences for the tax structure of investments in retirement or investment apartments. Tax consultant Ferhat Hofmann explains the most important points that investors should pay attention to.

Mr. Hofmann, the sharp rise in interest rates and high inflation are changing the investment model of the investment apartment. How does this affect tax optimization?

The most obvious change is the sharp rise in financing costs. In order not to slip into hobbyism, but to achieve an overall taxable profit, an investor must therefore raise proportionately more equity capital today than in years in which borrowed capital could be raised more cheaply. This is not always offset by the slightly higher yields that are currently possible. In order to minimize the risk of hobbyism, an equity share of around one third is advisable.

What would otherwise be the consequence?

If no total taxable profit is achieved and the business is a hobby for tax purposes, the input tax claimed on the purchase must be repaid and any initial losses must also be taxed. Since the start of the rise in interest rates, the general conditions have changed, which is why it is ad- visable to include a higher buffer reserve in the tax forecast. Alternatively, it is also possible or even sensible for some properties to waive input tax on the purchase and to rent out with the small business regulation (maximum turnover from renting and leasing of EUR 35,000 net per year) without VAT and with higher optimized rents.

Does this mean forgoing a significant portion of the net return?

This varies depending on the location. Particularly in (very) good locations, where the basic cost share is higher, waiving the input tax de- duction only has a minor impact on the net yield, as VAT is only incurred on the construction costs for many properties. In return, a tax risk and a considerable organizational effort are eliminated, as no ongoing VAT registration is required, for example. In addition, a resale can be arranged more quickly and flexibly, as there is no need to pay VAT. It is important that anyone buying several investment apartments seeks advice in advance about other options, including tax optimization.

What are the possibilities?

For example, it is worth thinking about owning your own real estate company if you have around five apartments or an annual rental profit of around EUR 10,000. A simple form would be a partnership such as a co-owners‘ association, which is particularly useful if there are people with very different incomes in a family association and the income from the investment property can be taxed accordingly more favorably. An LLC is more costly but even more interesting from a tax perspective, as the combination of corporation tax and capital gains tax, if you are in the highest progression bracket, can ultimately be more favorable than taxation as part of income tax. Depending on your personal situation and investment objectives, other entities may also have special advantages. It is best to find out the right option in a consultation with a tax advisor.

Ferhat Hofmann, MA

Managing Director of FerTax Steuerberatungs GmbH & Co KG

Thinned-out offering in the federal capital

The decline in residential construction activity in Vienna is also leaving its mark on the investment housing market. In practically all submarkets, fewer apartments are on offer than in 2022 and especially 2023, although developers are again focusing on indi- vidual sales of apartments instead of overall sales to institutional investors. In the first half of 2024, however, there is (still) a suffi- ciently diverse and high-quality offering.

Vienna is by far the largest submarket of the Austrian investment housing market and the development in the federal capital is therefore in many ways also trend-setting for other federal states. Vienna trends are therefore reflected in the overall Austrian market figures, albeit with a time lag in some cases. The most significant change occurred in the second half of 2023 and the beginning of 2024: The decline in the number of completions in new residential construction is reflected one-to-one in the supply of invest- ment apartments, as the vast majority of owner-occupied projects now offer a choice between purchase for owner-occupation and investment apartments. The downward trend is mitigated, but not fully compensated for, by the trend towards individual sales rather than overall sales to institutional investors. As some projects from the building permit boom years of 2019 and 2020 are currently still being completed and coming onto the market, the supply is still good and varied. In the course of 2024 and especially 2025, investors will only have a limited choice. Initial yields are higher

year-on-year because rents are rising. The increasing shortage of living space in Vienna suggests that this positive trend will continue. Yields are currently mostly in the range between 2.8 and 3.6 percent. There is also a continuous change in the number of residenti- al units acquired for investment purposes: It is no longer just one- and two-room apartments that are in demand; compact three- and even four-room apartments (approx. 60 or 80 sqm) are also sought after. This segment is experiencing strong growth due to the shortage of three- and four-room apartments on the Viennese rental market. The yields are similar to smaller apartments thanks to the compact, highly efficient floor plans. This is also advantageous from an investor‘s point of view, as larger units have fewer tenant changes on average.

Klederinger Straße 63-65 1100 Vienna

Average rental prices for first occupancy and purchase prices (in euros/sqm)

6,000

13.90*

5,855

5,810*

5,000

12,87

4,829

4,000

4,454

12.42

12.21

3,000

2,000

2020

2021

2022

2023

Rental prices

Purchase prices

Source: EHL Market Research | Q4 2023

*Preliminary data

Inner-city districts In the districts within the Gürtel, the supply of investment apartments has been very low for years. While a few major projects provided at least a few investment opportunities until 2022, the supply has currently declined massively. The reason for this is not only the limited potential for redensification in central, urban areas, but also the fact that the price level is characterized by strong interest from owner-occupiers and is therefore higher. Yields are therefore usually lower for rental properties. Nonetheless, the purchase is also interesting from an investment point of view, as there are above-average, long-term prospects for value appreciation due to the virtually irreproducible supply. In essence, individual micro-locations, such as the parts of the 3rd district close to the Gürtel, are particularly attractive. Due to the increased rents, good yields can be achieved in these locations, which are certainly comparable with projects in peripheral locations.

Outer districts In the urban development areas north of the Danube and in the south (Liesing, outer areas of the 10th district) there is the largest supply of investment apartments - mostly in relatively large projects with more than 100 residential units. Investments are attractive in these districts, as the demand for rental apartments in the lower cost range is very good. However, investors should pay particular attention to the micro-location, especially in the area districts. If a particu- larly large number of residential buildings are expected at a certain location, this could mean lower rent increases in the medium term. On the other hand, a strong influx, as is currently taking place in Floridsdorf, for example, means that good demand for rental apartments can be expected and therefore alsomakesinvestmentapartmentsattractive.

Selected investment projects in Vienna

Helio Tower

THE RAY

2 TIMBERLAA

Döblerhofstraße 10 1030 Vienna Number of apartments: 228 Completion: 2022 1

Gumpendorfer Straße 60 1060 Vienna Number of apartments: 56 Completion: Q4 2023

Klederingerstraße 63-65 1100 Vienna Number of apartments: 38 Completion: Q2 2023

DECK ZEHN

Kobelgasse

Wildgarten

Laxenburger Straße 2D 1100 Vienna Number of apartments: 229 Completion: Q4 2023 4

Lore-Kutschera-Weg 11 1120 Vienna Number of apartments: 188 Completion: 2023 6

Kobelgasse 9 1110 Vienna Number of apartments: 46 Completion: 2025

Park in Sicht

CUVÉE

Park Suites Hockegasse 49 1180 Vienna

hidden garden Pyrkergasse 25 1190 Vienna

Goldschlagstraße 191 1140 Vienna Number of apartments: 50 Completion: 2023

Taubergasse 26-28 1170 Vienna Number of apartments: 41 Completion: 2023

Number of apartments: 34 Completion: 2023

Number of apartments: 11 Completion: 2023

A22

21.

19.

20.

18.

17.

16.

22.

15. 6. 7. 8.

14.

U2 U5

13.

11.

12.

10.

23.

A23

A21 A2 S1

FloriFlats

Erzherzog Karl Str. Erzherzog Karl Str. 134a 1220 Vienna Number of apartments: 40 Completion: 2023

Arakawastr.

Khek:51

Edi-Finger-Straße 7c 1210 Vienna Number of apartments: 58 Completion: Q4 2023

Arakawastrasse 3 1220 Vienna Number of apartments: 46 Completion: Q1 2024

Khekgasse 51 1230 Vienna Number of apartments: 44 Completion: Q2 2024

Vienna environs / Lower Austria

In recent years, the immediate and now somewhat wider surroundings of the federal capital have established themselves as an attractive investment housing market. The proportion of privately financed residential construction has risen continuously and the sometimes very significant population growth - as the growth rates of many surrounding municipalities are significantly higher than in Vienna - ensures a sustained, structural need for additional living space.

The most important drivers of the market are demographic developments and the expansion of infrastructure. As a result, it is also becoming increasingly attractive to the Viennese, who expect a higher quality of life in the countryside in smaller towns and also want to benefit from the slightly lower price level. But the surrounding area is also an attractive place to live for people from peri- pheral parts of the country who find work in the metropolis, creating a symbiosis between proximity to the workplace and yet not quite living in the big city. Equally important is the

improved transport connection to Vienna. The Railjet has brought cities such as Wiener Neustadt and St. Pölten within a good 20 minutes of Vienna, while the rural Tullnerfeld is less than 15 minutes away. Additional S-Bahn trains and, in the north, the subway trains extended to the outskirts of the city also contribute to the fact that Vienna‘s city center can now be reached at least as quickly from some of the surrounding communities as from less well-connected parts of Vienna‘s outlying districts.

Ackergasse 14 2700 Viennaer Neustadt

Wiener Neustadt and the south

Wiener Neustadt, by far the largest city in southern Lower Austria, has become one of the hotspots of the investment housing market around Vienna. The importance of the improved transport infrastructure is particularly noticeable here. The expansion of the „Pottendorf Line“ was completed in 2023, which will greatly relieve the chronically overcrowded train connections to Vienna. The completion of the Semmering Base Tunnel, which is expected in a few years‘ time, and the associated significant reduction in travel times to the south, is now also being reflected in ad- ditional interest in Wiener Neustadt as a busi- ness location and thus also in a further boost for the residential market. Wiener Neustadt is

also an important location for universities with continuously growing student numbers. Prices per square meter for investment apartments in Wiener Neustadt are currently between EUR 3,250 and EUR 4,390, while rents for new apartments in good to very good locations range from EUR 10.85 to EUR 12.50/sqm. A number of innovative and sustainably well-de- signed projects are currently on the market, such as the Hero Group‘s „Bella Vita“, where 49 apartments are being built in a sought- after residential location. In NID‘s „KOLL. home“, which has already been completed, apartments are for sale directly in the center of Wiener Neustadt. There is also strong demand in the district of Mödling, which

borders directly on the south of Vienna. In the most expensive locations such as Perchtolds- dorf or Hinterbrühl, demand is dominated by owner-occupiers due to the high price level, but attractive projects are also coming onto the market time and again for investors. This is even more the case in the town of Baden further south, where the above-mentioned expansion of the Pottendorf line has also increased the potential of some neighboring towns such as Ebreichsdorf. Depending on the quality of the property and its location, prices per square meter for investment apartments range between EUR 4,650 and EUR 5,250.

©Christian Pichlkastner

Korneuburg, Stockerau and Krems

The cities north of the Danube are less the focus of investors, but they are no longer an „insider tip“. The district capital of Korneuburg and the neighboring smaller municipalities of Langenzersdorf and Bisamberg have already established themselves as attractive rental markets, and there are now also interesting projects in Stockerau, a few minutes‘ drive to the west. However, the school and university town of Krems in particular has great poten- tial, as it is seeing a strong influx of people in the higher income bracket and is also attrac- ting more and more second-home owners. Due to the high market level, the average sales prices in Krems are higher than in the other hotspots in Lower Austria.

Development of average purchase prices of transacted investment apartments in the Vienna suburbs (in euros/sqm)

4,000

©Squarebytes

4,004 4,050*

3,000

3,599

3,598

2,000

1,000

2020

2021

2022

2023

*Preliminary data

Hauptstraße 8 2000 Stockerau

Steindlstraße 6 3500 Krems an der Donau

St.Pölten

Driven by continuous population growth and the excellent connections to Vienna thanks to several high-speed trains, which make St. Pölten an extended local transport zone of the federal capital, the housing market will experience a strong upswing until 2022. A significant proportion of new construction was absorbed by institutional investors, but the number of owner-occupied projects attractive to investors has also increased, with prices tending to be moderate. In the context of the

usual location criteria, proximity to the main railway station is even more important in St. Pölten than in other cities. Recently, however, significantly fewer development projects have been launched again, which has a positive effect on rental prospects, but also means a smaller supply of investment apartments for this region.

©Squarebytes

Development of the average purchase prices of transacted investment apartments in St. Pölten (in euros/sqm)

4,000

3,000

3,557

3,510*

3,432

2,000

2,428

1,000

2020

2021

2022

2023

*Preliminary data

Few, but exciting projects in the state capitals

The decline in new construction activity is having a more noticeable impact on the supply of investment opportunities in smaller markets than in the dominant Viennese market. However, even if the number of investment housing projects in the provincial capitals is currently quite limited, the offer is nonetheless very interesting from an investor‘s perspective. In any case, the economic prospects for investment opportunities are in no way inferior to those in the federal capital. They are therefore a promising alternative, especially for private investors with a regional connection and / or local market knowledge. The state capitals present themselves quite

differently from an investor‘s point of view. In cities with a particularly high price level, such as Innsbruck or Salzburg, owner-occupiers dominate the market and there are very few interesting opportunities for buyers of investment apartments. In high-growth cities such as Graz and Linz, on the other hand, the somewhat lower price level often opens up attractive yield prospects.

Kasernstraße 24 8010 Graz

Graz

The (investment) housing market in the Styrian capital is Austria‘s number 2 behind Vienna, which clearly dominates the market, and in recent years it has managed to set itself quite clearly apart from the markets in the other provincial capitals. While the market situation up to 2022 was characterized by a sharp increase in new space production and therefore longer utilization times, the tide has now turned: The supply has become signifi- cantly smaller, while the demand for rental apartments has tended to increase. This has a positive effect on the prospects for the realiza- tion of investment projects and also suggests that rents will rise again. Purchase prices are currently generally between 3,500 and 4,250 euros/sqm for high-quality projects, while

rents in good locations reach 10.65 to 12.15 euros/sqm. The districts of Lend, Eggenberg and Jakomini in particular offer interesting investment opportunities for buyers of invest- ment apartments, while in the city center there are mainly properties of interest to ow- ner-occupiers. Graz also has an above-average number of owner-builder models. This is due on the one hand to attractive state subsidies and on the other hand to the Bauherrenmodell PLUS, which can currently only be offered in Styria under the current legal situation. This model offers the opportunity to invest in a builder-owner model and residential property, whereas other builder-owner models only allow shares in a building without direct alloca- tion of apartments and without the creation

of residential property. (For details, see pages 26 and 27) The long-term prospects are also very positive: The renowned and continuously growing universities are just as important a location factor as the city‘s connection to the high-speed rail network, which will be comple- ted in a few years. This development will be reflected in rising demand for rental apart- ments and provide investors with lucrative returns.

Development of the average purchase prices of transacted investment apartments in Graz (in euros/sqm)

4,000

3,000

3,520*

3,473

3,449

3,220

2,000

1,000

2020

2021

2022

2023

©Telegram 71

*Preliminary data

Linz

The decline in new residential construction is also clearly noticeable in the Upper Austrian capital. The number of completions has been declining since 2021, and some large and medium-sized projects that were actually due to start in 2023 and 2024 have been postponed. Construction starts for privately financed condominium projects, such as that of a Consulting Company residential property in the Urfahr district, are currently in short supply, and demand for the few available units is correspondingly high. As a result of this development, the vacancy rate is continuing to fall while rents remain stable, and the reali- zation times for vacant apartments are gene-

rally short. Rents for good-quality projects in above-average locations range between 10.65 and 11.50 euros/sqm, while purchase prices are in the range of 4,350 to 5,650 euros in good residential locations. At this price level, buyers of investment apartments can also find interesting offers with acceptable returns in the city center.

Parzhofstraße 25 4040 Linz

Development of the average purchase prices of transacted investment apartments in Linz (in euros/sqm)

5,000

5,060*

4,000

4,498

3,776

3,000

3,575

2,000

2020

2021

2022

2023

*Preliminary data

Parzhofstraße 25 4040 Linz

Klagenfurt

With a population of just 104,000, Klagenfurt is one of the smaller provincial capitals, but currently has even more construction activity than the much larger Graz. The price level in good locations is between 3,150 and 3,950 euros/sqm, which is below that of the other investment markets, meaning that investors can achieve attractive yields with rents of 9.60 to 11.00 euro/sqm. From an investor‘s perspective, the Carinthian capital is interes- ting from both a short-term and long-term perspective. In the short term, the low housing prices and rents are an advantage in the cur- rent weak economy; in the medium and long term, Klagenfurt is already benefiting and will benefit even more than all other cities from the expansion of the high-speed Südbahn. Projects around the city center and along the

northern axis with its good infrastructure are particularly attractive for investment oppor- tunities. But real estate projects along the west-south axis also benefit from the proximity to the leisure paradise of Lake Wörthersee as well as the nearby university and Lakeside Science & Technology Park. Villach, which has significantly more inhabitants than the Lower Austrian provincial capital of St. Pölten, is still more of an insider tip. As a classic „railroad town“, the Draumetropolis will also benefit from the expansion of the high-speed rail net- work, and the booming Infineon plant will also ensure growth and inward migration.

Development of the average purchase prices of transacted investment apartments in Klagenfurt (in euros/sqm)

4,000

3,000

3,470*

3,334

3,160

2,802

2,000

1,000

2020

2021

2022

2023

*Preliminary data

Selected investment projects in Austria

Bella Vita

h[AU]ptstraße Hauptstraße 8 2000 Stockerau

FRANK

Ackergasse 14 2700 Wiener Neustadt Number of apartments: 49 Completion: 2025

Conrad von Hötzendorf- Platz 3a, 2500 Baden Number of apartments: 17 Completion: 2025

Number of apartments: 86 Completion: Q2 2024

Ensemble Krems

Maro Living

Parzhofstraße Parzhofstraße 25 4040 Linz

Jakomini Verde Kasernstraße 24 8010 Graz

Pöttschinger Straße 76 7201 Neudörfl Number of apartments: 24 Completion: 2024

Steindlstraße 6 3500 Krems an der Donau Number of apartments: 62 Completion: Q3 2024

Number of apartments: 42 Completion: 2025

Number of apartments: 90 Completion: Q4 2024

Tower 23 4020 Linz Baumbachstraße 2

GATE 17 8055 Graz Triester Straße 432

©Squarebytes

Tiergartenweg 32 8055 Graz

©IFA AG

Währinger Gürtel 134 1090 Vienna

Plabutscherstraße 63-67 8051 Graz

This is how builder-owner models work

With a builder-owner model, private inves- torsinvestintheconstructionorrenovation of a subsidized residential building. This is done either by purchasing a co-ownership share in the property (entered in the land register) or by participating in a limited partnership that owns the property. In combination with the favorable financing and tax benefits, the rental income, which is limited by the guideline value, also enables attractive after-tax returns. As rents are below the market level, the utilization risk is also particularly low in the case of owner-occupier models. The exit is often given too little attention but is important for the overall success of the invest- ment: Investors can either hold their shares for the long term and generate rental income or sell them on the secondary market.

The Styrian Bauherrenmodel PLUS (builder-owner model PLUS): Styria is currently the only federal state to of- fer the „Bauherrenmodell PLUS“, in which buil- ders acquire a participation that is allocated to a specific apartment. The personal share in the property is entered in the land register and condominium ownership is established after completion of construction. When the subsidy expires, in this case after 20 years, the ho- meowner is free to dispose of his apartment and can rent it out without rent restrictions or use it himself. In a way, the Bauherrenmodell PLUS is a hybrid of the builder-owner model (with all the tax advantages) and the invest- ment apartment, which the owner can manage himself.

New momentum for owner-builder models

The new macroeconomic environment and the high demand for affordable housing is helping this classic property, which has recently received less attention, and offers private inves- tors another investment option with attractive opportunities.

The background to this comeback is the strong demand for affordable living space, as builder-owner models are designed exclusi- vely for this segment. In the first 20 years, the apartments may only be rented out at the guideline value (without location surcharge) or up to a maximum rent that covers costs. The attractive return for investors of three to four percent after tax is achieved through a combination of capped, low-risk rental income and public support for the creation

of affordable housing: Part of the financing is provided by favorable public loans (regulated differently depending on the federal state, e.g. one percent fixed interest rate in Vienna). In addition, the property can be depreciated on an accelerated basis over 15 years instead of 67 and investors can claim the resulting tax loss as part of their tax assessment.

Short depreciation

The property can be depreciated over 15 years instead of the usual 67 years. This also results in tax-deductible losses.

Tax-mitigating

Advantages of the builder- owner model:

During the set-up phase, investors can use the calculated start-up losses attributable to their share to reduce their tax liability as part of their in- come tax return.

Subsidized loans

The subsidies vary depending on the federal state. As a rule, these take the form of very low-interest loans (e.g. one percent for a 20- year term in Vienna)

Small - Smart Invest

With builder-owner models, you can get started with a lower equity ratio and from an investment sum of around 50,000 euros.

Free market conditions

After repayment of the subsidized loan, the apartments can be rented out at free market conditions.

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Cover: DECK ZEHN | BUWOG | © Real Agency This report is a translation. In the event of doubt the German-language version is to be used. The information and forecasts in this report are provided without guarantee, warranty or liability. The electronic version of this report is available for download under www.ehl.at/research

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