Properties - a bubble?

The question arises as often as night follows day: The question about a real estate bubble can be considered legitimate. Is there such a bubble in Austria and Germany?


Whoever wants to answer this question wholeheartedly, cannot use a one-size-fits-all approach for properties. There is no such thing as “the” real estate market as separate regions and different asset classes develop independently from each other, that is to say they do not correlate.

Whenever I refer to the property market in Vienna and to the bigger German cities (which are our main markets) I have to state the following without any emotions:

Currently, new development projects do not even cover the new demand caused by migration to the cities and financing by banks is rather restrictive.

Of course, low interest rates in property financing are a temptation, but the restrictive policy followed by banks does not create an excess production driven by financing, hence, there is no reason for a bubble.

Another aspect to consider is the demographic development and the trend to single households. According to statistics, in Germany there are 2.01 persons per household. Germany counts with a population of 82 million; this is to say there are 40.8 million households. If the number of persons in a household decreases from 2.01 to 1.9 (and this is the current development as in Berlin, for example, the value is already lower), there is a lack of 3.5 million units. Or in other words:

If every one person in twenty wants to live alone in future, all of a sudden there will be a lack of 3.5 million living units in Germany.

And this calculation does not even consider migration to the cities. And during the last years migration to Vienna was constantly higher than foreseen. This proofs that there is demand in any case.

Of course, this does not mean that sales prices for flats will go on increasing as they did so far. They could move sideward in the next years - which might cause pressure to other project developers if in the same period property prices and construction costs go on to increase and this will reduce the margins. We counteract to this trend for some time now by the strategic approach of building up property reserves.

So then the property market is getting back to normal?

As a matter of fact we expect the price increase to flatten towards an index increase, however, we do not see a bursting of a fictitious bubble. If and how this might happen, will on the one hand depend on the velocity of construction permits approved and the optimization of construction times - we consider this to be an instrument to level out offer and demand on the property market. But it might also help to regulate and decelerate migration to the metropolitan areas. On the other hand there are, of course, other important factors such as a turnaround of interest rates (from our point of view something we do not expect) or similar concomitant circumstances.