Gerhard Weinhofer, managing director of the creditor protection association Creditreform Austria, predicts that bankruptcies in the real estate industry will continue to rise. The sector is facing a toxic combination of rising interest rates, lower property values, and higher construction costs, which could lead to further instability and financial crises. While Weinhofer acknowledges that the economic climate is a major factor contributing to the industry’s struggles, he believes that the long-standing zero-interest policy played a significant role in triggering a boom in the market and artificially inflating profits.

The cheap money for two decades has created an addiction-like dependency on financing that cannot be abruptly stopped. As interest rates rise and loans become more expensive, project financing has become increasingly difficult. This has put pressure on consumers and many can no longer afford to buy their own homes.

The increased demand for properties and limited supply has led to higher rents in many areas. With more people being pushed into the rental market, it is likely that rental prices will continue to increase, particularly for apartments without subsidies.

While Weinhofer does not expect an immediate housing shortage, he believes that the situation will worsen in eastern Austria where population growth is occurring at a faster rate. The construction industry is already experiencing an increase in bankruptcies due to these challenges. A recent analysis by credit insurer Acredia found that 667 domestic construction companies filed for bankruptcy between January and September 2013, representing a 16% increase compared to the same period last year.

By Editor

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