The real estate industry in Austria is facing a toxic mix of rising interest rates, lower real estate prices, and higher construction costs that may lead to further upheavals and bankruptcies. This is the belief of Gerhard Weinhofer, managing director of the creditor protection association Creditreform Austria. According to him, while the economic environment plays a significant role in the industry’s difficulties, it was also influenced by the long-standing zero-interest policy that enabled cheap financing of real estate projects and subsequently triggered a boom in the market and high profits.

The cheap money for two decades acted like a drug and cannot be left abruptly. Weinhofer believes that the long-term upswing in the sector is over, and rising interest rates have made loans expensive, making project financing noticeably more difficult. This has put consumers under increasing pressure and many can no longer afford to own their own home. The situation has impacts on rents and the construction sector, and demand for property has increased while the supply remains more or less the same. The majority of 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; however, he believes that the situation will get worse, particularly in eastern Austria where the population is growing. He stated that there will be more bankruptcies in domestic construction companies as a result of this turbulence in the real estate sector. According to a current analysis by credit insurer Acredia from January to September 2013, 667 domestic construction companies filed for bankruptcy, which represents a 16% increase compared to the same period last year.